Australian household debt falls into two practical buckets for advice purposes: borrowing that buys an appreciating or income-producing asset, such as a home loan or investment loan, and consumer borrowing such as personal loans, credit cards and buy-now-pay-later balances that fund depreciating spending. The type matters because the strategy differs: the first is usually managed over decades with structure and reviews, while the second needs active reduction because its rates are the highest in a client’s position.
This guide sets out the main debt types a broker encounters, the management strategies that actually work and the free help available when a client’s position has deteriorated beyond do-it-yourself fixes.
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The debt types that matter in client files
Secured lending sits at one end: mortgages, car loans and investment property loans backed by an asset, generally carrying the lowest rates and longest terms. Unsecured debt sits at the other: credit cards, store cards, personal loans and payday-style products, where pricing reflects the absence of security and can run into double digits.
The common good-versus-bad shorthand is a useful starting point but imperfect: a mortgage on an owner-occupied home is not tax-effective yet still builds an asset, while a credit card funding groceries builds nothing. What matters for advice is the rate attached, whether the balance grows or shrinks and what the borrowing funded, rather than the label itself.
Management strategies that work
Reduction starts with visibility. A written list of every balance, rate, limit and minimum payment turns anxiety into a plan, and a realistic Budgeting framework shows how much surplus genuinely exists each month to attack it. Two ordering approaches then apply. The first saves the most interest: pay minimums everywhere while directing all surplus at the highest-rate balance. The second builds momentum faster: target the smallest balance until it is gone. The arithmetic favours the first; the psychology sometimes favours the second, and either beats spreading extra payments evenly.
For clients juggling several unsecured balances, Debt consolidation into a personal loan or the mortgage can cut the blended rate and simplify repayment into one schedule. It only works when the underlying spending changes: consolidating card debt then re-drawing the cards leaves the client worse off, so pair any consolidation with lower limits or closed accounts where appropriate. Because consolidation often extends the term, compare total cost rather than just the monthly payment, and check that the reduced interest rates on offer survive fees and any break costs. Well-run examples of clients who turned their position around make useful case studies when the next similar file walks in.
Where a mortgage exists, offset and redraw facilities change how effectively spare cash reduces interest without losing access to it. For investors with borrowings against income-producing assets, debt recycling can convert non-deductible debt into deductible debt over time, but it involves gearing risk and tax consequences that need an accountant’s input before anything is recommended.
When a client is in genuine hardship
Past a certain point, restructuring advice is not enough. Lenders are required to consider hardship applications, which can mean paused payments or varied terms for borrowers experiencing temporary difficulty. Free financial counsellors work independently of lenders and brokers, and informal options such as debt agreements have lasting consequences that clients should understand fully before signing anything. Pointing a struggling client to free counselling early is one of the highest-value referrals a broker can make.
Making the strategy stick
Plans fail at review points rather than at setup. Diarise a three-month check on every consolidation or reduction plan, celebrate balances reaching zero by closing accounts rather than leaving them open, and keep one modest credit facility active so the client retains a healthy credit history.
Before your next appointment with a debt-heavy file, build the one-page balance list yourself from the bank statements and bring two costed options to the meeting. Clients act faster on numbers they can see than on intentions they were told to have.
