50k-in-debt

The best way to pay down $50,000 in debt

Debt can creep up on you, so what do you do when it hits $50,000?

Debt always starts out small, and while for many people it doesn't grow into a problem, for others it does. This page discusses expert-approved strategies at paying down a large sum of debt, Specifically, $50,000.

The $50,000 problem

Joe and Lillian are in an enviable position as homeowners. They purchased a house 12 years ago for $287,000 and currently have a variable rate loan with ANZ. They have $130,000 in equity and $157,000 in principal remaining. Their net household income is $64,168.

While they have assets, they also have considerable debts. At the moment they have a $20,000 debt on their HSBC Platinum credit card and a $30,000 car loan debt with Bankwest.

Noel Whittaker

Finance expert, Sydney Morning Herald

Smallest to largest

If the term is fairly short – under five years – there is really no point in chasing a cheaper rate. This is why I recommend the strategy of paying off the smallest loan first if you've got several personal loans. A key factor is to improve your money management habits if you are in trouble because of that. Otherwise, you'll be back where you started, even if you do manage to pay off the existing debts.

I am aware of the strategy of consolidating all your debts into your home loan to get a cheaper rate and this will work if you substantially increase the repayments on that loan. Otherwise, all you'll be doing is stretching out your current personal loans to 30 years! If you have investment loans as well as non-deductible housing loans – most people in trouble don't – you could move the investment loans to interest only which should reduce the repayments on them and then use the money so saved to speed up the payments on your non-deductible loans.

Robert Dawson

Financial Advisor, Insight Investment & Retirement Strategies

The main problem and two solutions

Joe & Lillian’s core problem is that their net income is only $5,333 per month but their combined debt expenses (based on current interest rates and probable repayment schedules) are now $2,860, 53% of the net income per month.

This is comprised of the following:

  • Credit card debt minimum repayment of $600 per month ($333 interest at 20% p.a.)
  • Personal loan (typically over five years) now in year four with $775 in repayments per month ($275 interest at 11%)
  • Mortgage of $1485 month (including interest of 6.5% $850 per month)

This only leaves them $570 per week to live on. There are a couple of options.

Option 1: Debt consolidation into your mortgage

The simplest solution is to approach their bank and consolidate their credit card and personal loan into the mortgage, using the equity in their home, but maintain a high repayment schedule. Their new debt will be $207,000 and on the old remaining 13-year time frame the repayments will be $1,957, up from $1,485 per month.

But the total interest payments are now spread over another 13 years which is greater than the original car and car loans interest payments were over only five. So they still need to set a target of say 40-45% of income to service the debt.

At 45% of net income, the repayments should be $2,400 per month and the whole debt now will be eliminated in only nine years and nine months instead of 13 years. They will now also have an extra $100 per week to live on. If they occasionally wander off the repayments they have set themselves, then they will still reduce their total interest payments from $100,000 over 13 years to say $73,000 - $75,000 over the period they do pay back the loans.

This amount is close to the total interest that the home loan itself was going to be over the 13-year period. They have effectively eliminated the $50,000 in debt virtually interest-free, so to speak.

Option 2: The 18-month kill zone

An additional little twist to add value – if they really wish to kill their debt and can manage the existing repayments for just another 18 months is as follows:

1. Apply for another credit card that has a special 0% interest-free period to rollover the existing $20,000 card debt and repay that at the same rate as the minimum $600 per month required. All of this will go to reduce the debt, not half of it.

2. Consolidate the car loan debt with the mortgage but maintain the same repayment rate added to the existing home repayment. Then with your credit card the new arrangement will, over six months, eliminate $3,600 of debt and if repeated on another credit card, six months later will reduce another $3,600. At the end of a third six-month period they will have eliminated $10,800. There is a limit as to how long you can keep doing this and you need to get rid of the old cards as you acquire a new one with an interest-free period.

If they then add the remaining $9,200 to their mortgage in 18 months, the total amount outstanding will then be approx. $174,000 at that point in time. Then set the overall repayments at the 45% of income ($2400) the total debt will be eliminated in the remaining eight years and the remaining interest paid will be approximately only $48,000 (at 6.5%). However, great discipline is required to achieve this.

*Important: This is general advice only on credit card and debt management

Visit Robert Dawson's website Insight Investment & Retirement Strategies: iirs.com.au

Lesson learnt: Getting into debt is easier than getting out

Where to next? Explore some of our other guides about debt and financial management.

Want to put some of our expert's strategies into action?

Rates last updated August 20th, 2018
$
% p.a.

Your search criteria didn't return any products. Click to reset your filter options and search again
Name Product Balance transfer rate (p.a.) Purchase rate (p.a.) Annual fee Amount Saved Product Description
Westpac Low Rate Card
0% p.a. for 24 months with 1% balance transfer fee
13.49% p.a.
$0 p.a. annual fee for the first year ($59 p.a. thereafter)
Offers a 0% for 24 month balance transfer option, first year annual fee waiver and a competitive purchase rate.
Citi Clear Platinum - Exclusive Offer
0% p.a. for 24 months with 1.5% balance transfer fee
14.99% p.a.
$49 p.a. annual fee for the first year ($99 p.a. thereafter)
finder Exclusive: Receive 0% p.a. for 24 months on balance transfers and a discounted annual fee in the first year. Plus, access to Citi World Privileges.
HSBC Platinum Credit Card
0% p.a. for 22 months with 2% balance transfer fee
19.99% p.a.
$129 p.a.
Offers a 0% p.a. for 22 months balance transfer and an annual fee refund each year when you spend $6,000.
St.George Vertigo Platinum - Online Offer
0% p.a. for 25 months
12.74% p.a.
$99 p.a.
Get platinum perks and save with 0% p.a. interest for up to 25 months on balance transfers with no BT fee.
NAB Low Fee Platinum Card
0% p.a. for 24 months with 2% balance transfer fee
19.74% p.a.
$90 p.a.
Offers 7 complimentary insurance covers, a 0% p.a. for 24 month balance transfer and access to a 24/7 concierge service for a $90 p.a. annual fee.
Virgin Australia Velocity Flyer Card - Bonus Points Offer
0% p.a. for 18 months
20.74% p.a.
$64 p.a. annual fee for the first year ($129 p.a. thereafter)
Earn up to 60,000 bonus Velocity Points in the first 3 months and enjoy a discounted annual fee of $64 for the first year.
HSBC Low Rate Credit Card
0% p.a. for 20 months with 2% balance transfer fee
13.25% p.a.
$79 p.a.
Receive up to 20 months interest-free on balance transfers with a 2% BT fee. Also enjoy exclusive offers with the home&Away Privilege Program.
Citi Simplicity Card
0% p.a. for 15 months with 1.5% balance transfer fee
19.99% p.a.
$0 p.a.
Save with 5% cashback on eligible purchases (capped at $50 per month) for the first 90 days from approval. Plus, a 15 month balance transfer offer.
Virgin Australia Velocity Flyer Card - Balance Transfer Offer
0% p.a. for 18 months
20.74% p.a.
$64 p.a. annual fee for the first year ($129 p.a. thereafter)
Take advantage of 0% p.a. on balance transfers for up to 18 months. $64 in the first year ($129 p.a. thereafter), plus, bonus Velocity Points.
NAB Low Fee Card
0% p.a. for 18 months with 2% balance transfer fee
19.74% p.a.
$30 p.a.
Receive complimentary purchase protection insurance, a 18 month balance transfer offer and special offers from Visa Entertainment.
Virgin Money Low Rate Credit Card
0% p.a. for 14 months
11.99% p.a.
$49 p.a.
Offers a $49 annual fee, 10% cashback on purchases made in the first 3 months (capped at $100) and 0% p.a. for 14 months on balance transfers.
Citi Platinum Credit Card - 100k Bonus Points
0% p.a. for 15 months with 1% balance transfer fee
20.99% p.a.
$49 p.a. annual fee for the first year ($149 p.a. thereafter)
Earn 100,000 reward Points, enjoy a long-term balance transfer offer, a discounted first year annual fee and complimentary travel insurance.
BankSA Amplify Card
3% p.a. for 36 months
19.49% p.a.
$0 p.a. annual fee for the first year ($79 p.a. thereafter)
Receive a 3% p.a. for 36 months balance transfer and earn Qantas or Amplify Points per $1 spent. Plus, enjoy a $0 annual fee for the first year.
BankSA Vertigo Visa
0% p.a. for 16 months
13.74% p.a.
$55 p.a.
Enjoy a 0% p.a. interest rate for up to 16 months on balance transfers with no balance transfer fee. Plus, a low ongoing purchase rate.
St.George Vertigo Visa
0% p.a. for 16 months
13.74% p.a.
$55 p.a.
Get 0% p.a. interest for up to 16 months on balance transfers with no BT fee. Plus, a competitive annual fee.
Bank of Melbourne Vertigo Platinum
0% p.a. for 24 months with 1% balance transfer fee
12.74% p.a.
$99 p.a.
Offers a long-term balance transfer, low ongoing purchase rate, complimentary travel insurance and access to a 24/7 personal concierge service.
St.George Amplify Card
3% p.a. for 36 months
19.49% p.a.
$0 p.a. annual fee for the first year ($79 p.a. thereafter)
Take advantage of 3% p.a. interest on balance transfers for 36 months. Plus, a $0 first year annual fee and Amplify or Qantas Points per $1 spent.
NAB Low Rate Platinum Card
0% p.a. for 6 months with 2% balance transfer fee
0% p.a. for 9 months (reverts to 13.99% p.a.)
$100 p.a.
Enjoy a 0% p.a. interest rate offer on purchases for 9 months and the protection of 7 complimentary insurances including overseas travel insurance.
American Express Velocity Escape Card
0% p.a. for 12 months with 1% balance transfer fee
20.74% p.a.
$0 p.a.
Earn uncapped Velocity Points on purchases, pay $0 annual fee for life and take advantage of a 0% p.a. for 12 months balance transfer offer.
American Express Explorer Credit Card
0% p.a. for 12 months with 1% balance transfer fee
20.74% p.a.
$395 p.a.
Receive 50,000 bonus Membership Rewards points, a yearly $400 Travel Credit and 2 entries per year to the American Express Lounge.

Compare up to 4 providers

Rates last updated August 20th, 2018
$
Name Product Interest Rate (p.a.) Comparison Rate (p.a.) Min Loan Amount Loan Term Monthly Service Fee Application Fee Product Description Monthly Repayment
NAB Personal Loan Unsecured Variable Rate
Headline rate 12.69% (variable)
13.56%
$5,000
1 to 7 years
$10
$150
Based on your risk profile you will receive a tailored rate between 10.69% p.a. and 18.69% p.a. (comparison rates between 11.58% p.a. and 19.53% p.a.)
SocietyOne Unsecured Personal Loan
From 7.5% (fixed)
9.51%
$5,000
2 to 5 years
$0
3% (of loan amount)
Based on your risk profile, you will receive a tailored rate between 7.5% and 20.49% with a SocietyOne personal loan.
HSBC Personal Loan
From 9.5% (fixed)
10.06%
$5,000
1 to 5 years
$5
$150
A competitive fixed interest rate loan with the option to make extra repayments. Rates range from 9.5% p.a. to 15.99% p.a. based on your credit history.
Westpac Unsecured Personal Loan
12.99% (fixed)
14.14%
$4,000
1 to 7 years
$12
$250
A competitive, fixed rate personal loan that allows you to make extra repayments.
Latitude Personal Loan (Unsecured)
From 13.99% (fixed)
15.19%
$3,000
2 to 7 years
$13
$250 (Loans under $4000 - $140)
An unsecured loan with a tailored rate from 13.99% p.a. to 29.99% p.a. designed for multiple purposes including renovating, buying a car or travelling.
Harmoney Unsecured Personal Loan
From 6.99% (fixed)
7.69%
$5,000
3 to 5 years
$0
$500 (Upfront fee)
Interest rates are tailored to each applicant individually, and start from as low as 6.99% p.a. to 26.95% p.a.. based on your credit history.
NOW FINANCE Personal Loans
From 7.95% (fixed)
9.56%
$5,000
1.5 to 7 years
$13
$395 (Based on $10,000)
Get rewarded with a low interest rate for your good credit history. Rates from 7.95% p.a. to 16.95% p.a. depending on your credit score.
MyState Unsecured Personal Loan
12.99% (variable)
16.42%
$3,000
1 to 7 years
$10
$200
Apply for up to $50,000 and make additional repayments at any time without penalty.

Compare up to 4 providers

Rates last updated August 20th, 2018
$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.59%
3.59%
$0
$0 p.a.
80%
Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees.
3.64%
3.66%
$0
$0 p.a.
80%
A simple mortgage with a competitive interest rate and no application or monthly fees. Borrow up to $2 million from a convenient online lender.
3.64%
3.65%
$0
$0 p.a.
80%
Low interest rate and limited fees. Add a 100% offset account for $10 a month.
3.49%
4.57%
$0
$395 p.a.
90%
Loans over $150k get a discount off an already low fixed rate. Available for NSW, QLD and ACT residents only.
3.69%
4.11%
$0
$395 p.a.
80%
Unlock a range of savings with this competitive package home loan offer. Offset account and redraw facility included.
3.68%
3.82%
$0
$10 monthly ($120 p.a.)
80%
Earn Velocity Frequent Flyer Points with this mortgage to spend on flights and more (subject to eligibility requirements). Redraw facility available on this variable rate home loan. Competitive interest rate.
3.70%
3.70%
$0
$0 p.a.
70%
Get a discount for keeping your LVR at 70% or below with this innovative online lender.
3.64%
3.78%
$0
$10 monthly ($120 p.a.)
80%
Earn thousands of Velocity Frequent Flyer Points on your mortgage (subject to eligibility requirements). Plus, access a 100% offset account to save on interest.
3.64%
3.79%
$0
$10 monthly ($120 p.a.)
70%
Low rate, low fee loan for owner-occupiers. You will need a 30% deposit to get this mortgage.
3.88%
4.40%
$0
$395 p.a.
90%
Lock in a very competitive 2 year rate and get package discounts on your credit card and offset account.
3.72%
4.10%
$0
$395 p.a.
80%
New borrowers or refinancers can get a discounted rate with this package loan. Bonus $1,500 cashback for refinancers.
3.84%
3.84%
$0
$0 p.a.
80%
Pay no application or ongoing fees and get access to a free redraw facility with this innovative online lender.
3.65%
3.66%
$0
$0 p.a.
80%
This special rate mortgage has no ongoing fees and offers flexible repayments. Save $595 in establishment fees before 30 September.
3.98%
4.41%
$0
$395 p.a.
90%
Take advantage of a low 3 year fixed rate, 40% offset account and no application fee.
3.75%
3.75%
$0
$0 p.a.
70%
Pay no application or ongoing fees and get a flexible loan with the ability to split up to 6 times.
3.72%
3.74%
$0
$0 p.a.
80%
Save on interest by taking advantage of a 100% offset account along with no ongoing fees or application fees.
3.54%
3.59%
$0
$0 p.a.
80%
Get a competitive rate, save on fees and access a 100% offset account plus redraw facility.
3.64%
3.64%
$0
$0 p.a.
70%
A low interest rate home loan with no application or ongoing fees.
3.68%
3.70%
$0
$0 p.a.
80%
This loan offers a competitive variable rate and a 100% offset account to help save you on interest repayments.
3.62%
3.62%
$0
$0 p.a.
95%
A low deposit mortgage with a competitive rate and plenty of flexibility. QLD residents only. Eligible borrowers can get a 15% discount on home and contents insurance for the life of their loan.
3.65%
3.66%
$0
$0 p.a.
90%
Competitive interest rate and low fees. Available with a 10% deposit. Partial offset account attached (offset up to $15,000).
3.75%
4.00%
$0
$248 p.a.
70%
Borrowers with a 30% deposit can get this competitive rate.
3.64%
3.64%
$0
$0 p.a.
70%
A basic variable home loan that offers a competitive interest rate with no application fees and no ongoing fees.
3.70%
4.13%
$0
$395 p.a.
90%
Package your loan with an eligible credit card for discounts on rates and fees, and get a 100% offset account.
3.74%
3.74%
$0
$0 p.a.
80%
A basic owner-occupier home loan with a low variable rate that requires a 20% deposit.
3.79%
3.79%
$0
$0 p.a.
80%
Access an offset account and pay no application or ongoing fees on this special variable rate for owner-occupiers.
3.67%
3.69%
$0
$0 p.a.
80%
A great interest rate home loan offer with unlimited redraw and unlimited extra payments.
3.85%
3.85%
$0
$0 p.a.
80%
Pay no application and ongoing fees with Macquarie Bank Basic Home Loan. Split and redraw facilities included.
3.74%
3.74%
$0
$0 p.a.
110%
Pay no deposit or LMI and get a discounted rate with this family pledge loan. Requires a family member to act as guarantor. NSW, Qld and ACT only.
3.64%
3.69%
$600
$0 p.a.
80%
A competitive variable rate for borrowers with a 20% deposit or more. Guarantor option available.
3.72%
4.11%
$0
$349 p.a.
90%
Package your loan with other AMP products and save on rates and fees.
3.71%
3.71%
$0
$0 p.a.
70%
A variable rate home loan that has a lot of flexible features. This loan has a 100% offset account.
3.74%
3.80%
$0
$0 p.a.
80%
Fast, 100% online application process. Very limited fees. Optional offset account (with fee).
4.13%
4.14%
$0
$0 p.a.
90%
Access a fee-free offset account and a special interest rate for investors.
3.89%
3.94%
$0
$0 p.a.
90%
Borrow up to 90% of the value of the property you're buying, and pay no application fee.
3.77%
3.79%
$600
$0 p.a.
90%
Buy your home with just a 10% deposit, few fees and a reasonable interest rate.
3.93%
3.94%
$0
$0 p.a.
80%
A low-fee line of credit loan from an online lender. Unlock the equity in your home and make interest-only repayments with a competitive rate.
3.64%
3.79%
$0
$0 p.a.
80%
Apply online for this fixed rate, low-fee loan with redraw facilities and an optional offset account.
3.99%
4.86%
$0
$0 p.a.
80%
Access a fee-free 100% offset account and pay no application or ongoing fees.
3.69%
4.54%
$0
$395 p.a.
90%
A fixed rate loan with a 100% offset account and the option to make additional repayments. Loans over $150k receive a discounted rate. NSW, QLD and ACT residents only.
3.74%
3.74%
$0
$0 p.a.
80%
Pay no application or ongoing fees and get access to a redraw facility and flexible repayment schedule.
4.09%
4.11%
$0
$0 p.a.
80%
This variable rate loan keeps the features simple and fees low. This loan is offered by a 100% online lender.
3.89%
4.94%
$595
$0 p.a.
90%
Borrow up to 90% of the value of the property you're buying and pay no application or ongoing fees.
4.24%
4.27%
$0
$0 p.a.
95%
Buy a home with just a 5% deposit and get flexible repayment options and a redraw facility.
4.14%
4.81%
$0
$0 p.a.
80%
Pay no application fees and access a fee-free redraw facility with this fixed rate loan.
3.68%
3.69%
$0
$0 p.a.
90%
Get one free online redraw per month and pay no ongoing fees. Application fees are waived for loans above $150,000.

Compare up to 4 providers

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Important Information*
HSBC Personal Loan

A competitive fixed interest rate loan with the option to make extra repayments. Rates range from 9.5% p.a. to 15.99% p.a. based on your credit history.

SocietyOne Unsecured Personal Loan

Based on your risk profile, you will receive a tailored rate between 7.5% and 20.49% with a SocietyOne personal loan.

Latitude Personal Loan (Unsecured)

An unsecured loan with a tailored rate from 13.99% p.a. to 29.99% p.a. designed for multiple purposes including renovating, buying a car or travelling.

Citi Personal Loan Plus

Borrow up to $75,000 to use for a range of purposes. You’ll receive a rate of between 8.99% p.a. and 17.99% p.a. depending on your risk profile. (Comparison Rate of 9.96% p.a. to 18.91% p.a.)

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4 Responses

  1. Default Gravatar
    MarkNovember 10, 2013

    Hi there,
    My wife and I have saved a $20,000 deposit for our first home,and we have a car loan which owes $.45,000.Should we focus on getting the car loan down before applying for a mortgage or do lenders take that into account. Just worried that the bank will knock us back.

    • finder Customer Care
      ShirleyNovember 11, 2013Staff

      Hi Mark,

      Thanks for your comment.

      It is likely that your car loan affects the amount that you can borrow to purchase a property, but it shouldn’t really affect your chances of getting a home loan, given that both of you have a good credit history plus you already have a deposit.

      Our borrowing power calculator can give you a good indication of how much you can borrow.

      Hope this helps,
      Shirley

  2. Default Gravatar
    BenJuly 24, 2013

    How can I manage to save on interest and bring down my debt fast, I earn 62k gross and no kids, pay 150 per week in rent and 150 on groceries etc.
    1# personal loan of 50k down to $26,400.12.9%
    2# flexi loan is $12,800 13.25%
    3# westpac credit card $13,897 12.9%
    4# anz credit card $8,867 16.8%

    • finder Customer Care
      JacobJuly 24, 2013Staff

      Hi Ben. It’s should go without saying that you should focus on the balances which are attracting the highest rates of interest first. Due to the spread of the products you hold, you will be unable to consolidate all the balances onto a credit card through a balance transfer as you can only consolidate other credit cards, store cards and charges cards (and in some cases personal loans and lines of credit) to a credit card.

      So you have the option of consolidating all the balances under a debt consolidation loan.
      Another option is to continue to pay down the flexi loan and consolidate the ANZ Credit Card, Westpac Credit Card and personal loan to a Citibank account or Virgin account. Citibank and Virgin are two institutions that allow you to transfer the balance of a personal loan or a line of credit to one of their credit accounts (credit cards and credit accounts). For example, the Citibank Ready Credit Account currently allows you to consolidate multiple balances under a promotional balance transfer rate or it allows you to write a cheque to self charged at the balance transfer promotional rate of interest. You can spend this cheque as you choose.

      The biggest issue I have found with repaying credit cards / loans is finding the sweet spot with how much to pay off the card(s) each month. If you pay too much, you may find that you have to redraw on these funds towards the end of the month. Careful budgeting and discipline is key.

      I hope this helps.

      Jacob.

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