Best Way to Pay Down $50k in Debt

Rates and Fees verified correct on February 25th, 2017

Balance transfers, promotional rates and interest-only payments on line of credit can only put you off from actually paying off your debt, which is why it is so important to having savings set aside.

Many people think that a little debt won’t hurt, but this could also be the first warning signs of larger debt. There’s something about debt that can drive you to continue spending, even though you can’t make the repayments and eventually, all that spending will come back to you. Debt can limit you to many things, like the money you can use for retirement or the presents that you wanted to buy for your family for Christmas.

The more debt you accumulate, the more your monthly pay will increase and the less you have to spend on everything else. These things are also taken into consideration when you take a mortgage application and if you’re debt is too much, you may get rejected for a home loan which could mean that you’ll be renting until all your debt is paid off. If you’re only paying the minimum amount due on your loans, you will most likely not get anywhere because as you pay down your principal each month, the minimum payment will go down as well. The result is that you make less progress each month.

If you ever find yourself in debt, the most important thing to do is workout a budget and stick to it. This will give you a skyview of where you money is going and how much you can spend without digging yourself in a deeper hole - then you can look at what options are available to you.

Case study

Joe and Lillian purchased a house 12 years ago for $287,000. They’ve been on a variable rate loan with ANZ 3 Year Fixed Rate home loan and have $130,000 in equity and $157,000 in principal remaining. They have a net household income of $64,168. At the moment they have a $20,000 debt on their HSBC Platinum credit card and $30,000 debt on their Bankwest Car loan.

Jacob Joseph

Credit card expert,

Budgeting is key

The first step should be to look at their financial situation and create a budget. With over $50,000 owing on their personal loan and credit card, they need to tighten their belts as much as possible and put every penny towards reducing these balances. One thing they may want to consider doing is consolidating the debt under a debt consolidation personal loan or under a credit account, like the Citibank Ready Credit - Citibank allow people to transfer the balance of a loan to a credit account and offer a promotional rate that beats most mortgage rates - but this all depends on how quickly they can pay back the debt.

Another option is to consolidate the personal loan and credit card debts on to the mortgage. But before they do this, they need to run the maths and figure out whether the cost of adding an extra $50,000 to their mortgage principal is going to cost more over the life of the mortgage in interest charges than consolidating to another form of debt finance. Regardless of which strategy they choose to go with, it is bunk without the foundations of responsible financial management.

Noel Whittaker

Finance expert, Sydney Morning Herald

Consider switching

Keep in mind interest-only loans should not be used when affordability is an issue. If you can’t afford the principal and interest repayments on a loan then this would indicate that the loan is not suitable for your needs. In these cases you would be better to look for a less expensive property or wait until you have increased your savings or generated more income. Lenders will assess your loan application based on principal and interest repayments to satisfy themselves that you are not at risk of hardship. There may be some situations where an interest-only loan may be appropriate – construction loans, for example, are often interest-only during the construction stage to take into account the fact that you may have rental and other costs that will cease on completion of the project..

Expert Advice: How to repay $50,00 in debt

Robert Dawson Sydney Financial Advisor

See Rob’s personal site: Insight Investment and Retirement Strategies

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 (of which $333 is interest at 20% p.a.)
  • Personal Loan (typically over 5yrs) now in year 4 with $775 month repayment ($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: Single debt Consolidation in 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 5. 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 9 years and 9 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 zero 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.

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

Visit Robert Dawson's website Insight Investment & Retirement Strategies:

Comparison of 0% balance transfer credit cards

Rates last updated February 25th, 2017
Purchase rate (p.a.) Balance transfer rate (p.a.) Annual fee
NAB Premium Card
Benefit from platinum perks plus take advantage of a low interest rate on balance transfers.
19.74% p.a. 0% p.a. for 24 months with a one off 3% balance transfer fee $90 p.a. Go to site More info
ANZ Platinum Credit Card - Exclusive Offer
Receive a low introductory offer of 0% p.a. on purchases for 3 months and 0% p.a. on balance transfers for 12 months. Also, enjoy an annual fee waiver in the first year.
0% p.a. for 3 months (reverts to 19.74% p.a.) 0% p.a. for 12 months $0 p.a. annual fee for the first year ($87 p.a. thereafter) Go to site More info
Citi Rewards Credit Card - Platinum Card
A long term balance transfer offer with platinum rewards and benefits.
20.99% p.a. 0% p.a. for 24 months with 1.5% balance transfer fee $49 p.a. annual fee for the first year ($149 p.a. thereafter) Go to site More info
Virgin Australia Velocity Flyer Card - Balance Transfer Offer
Earn 2 Velocity Points per $1 spent and save with a reduced annual fee and a 0% p.a. balance transfer offer for 18 months.
20.74% p.a. 0% p.a. for 18 months $64 p.a. annual fee for the first year ($129 p.a. thereafter) Go to site More info
HSBC Platinum Credit Card
Receive a full annual fee refund and save $149 if you meet the $6,000 spend requirement. Enjoy a balance transfer offer and platinum card benefits such as complimentary insurances and concierge services.
19.99% p.a. 0% p.a. for 15 months $149 p.a. Go to site More info
American Express Essential Credit Card
Receive a $50 credit on eligible spend and get Smartphone screen insurance combined with a no annual fee for life card. Also enjoy a 0% p.a. balance transfer rate for 12 months.
14.99% p.a. 0% p.a. for 12 months with 1% balance transfer fee $0 p.a. Go to site More info
NAB Low Rate Platinum Card
Offers a low introductory rate of 0% p.a. on balance transfers for 18 months plus enjoy premium benefits including international travel insurance.
13.99% p.a. 0% p.a. for 18 months with a one off 3% balance transfer fee $100 p.a. Go to site More info
Virgin No Annual Fee Credit Card
No annual fee for the life of the card with $100 cashback and a 0% p.a. offer on balance transfers for 18 months. Spend criteria applies for cashback offer.
18.99% p.a. 0% p.a. for 18 months with 2% balance transfer fee $0 p.a. Go to site More info
Citi Simplicity Card
Take advantage of the 0% p.a. for 15 months offer on balance transfers, a low interest rate on purchases, an annual fee waiver for life, plus 5% cash back on retail purchases.
19.99% p.a. 0% p.a. for 15 months with 1.5% balance transfer fee $0 p.a. Go to site More info
Bank of Melbourne Vertigo Visa Credit Card
Enjoy a low annual fee combined with 0% p.a. balance transfer offer for 12 months and 0% p.a. for up to 6 months on purchases.
0% p.a. for 6 months (reverts to 13.24% p.a.) 0% p.a. for 12 months $55 p.a. Go to site More info

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 loans the new arrangement will, over 6 months, eliminate $3,600 of debt and if repeated on another credit card 6 months later will reduce another $3,600. At the end of a third 6 months 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 8 years and the remaining interest paid will be approximately only $48,000 (at 6.5%). However, great discipline is required to achieve this.

How to Create a Household Budget

One of the elements of Rob’s solution is to know how much you have available to spend. By knowing how much you have in debt, you can work out how to spend your income and what portion you need to set aside. Below is an example of how your budget can look like and the key is the make sure that your mortgage and credit card repayments are sufficient by every statement period.

For example

April 2013May 2013
Husband income
Wife income
Other income
Credit card
Auto - gas/repair
Medical bills
Total expenses

Lesson learnt - getting into debt is much easier than getting out

While credit can help you do many things like buy your dream house, get a new car or pay for the essential household items, getting into debt is much easier than getting out of it. Fees, charges and interest rates can make credit very expensive in the long term. If you borrow more than you can afford, then you need to stay in control of your finances before it spirals out of control.

8 questions with a financial advisor: transcript

We're a society that's driven by wants, not needs. It's a want society. You see all the advertising and promotion; it's all about what you want, not what you need. You don't really need a shirt with a $50 logo on it; you're quite happy with a $25 shirt. A lot of these ads tell you that you should buy these things because you're worth it, not if you can afford it. That's how people get into debt.

I think the best way to manage debt is to write down all the expenses you have in a typical week, make allowances for some of the quarterly expenses that you have and try to work out what things you don't really need to do. It might mean that one weekend a month, you need to have a poverty weekend where you don't go out and spend. That money that you save on that weekend is what you use to pay off your debt.

If you find that at the end of the month you're struggling to pay whatever bills that you having, if you find that your credit card never seems to go backwards because you're not managing it properly, then they're signs that you're struggling. What you should be doing is being far more disciplined.

For any lender or provider to report someone for bad credit, there's a process that they have to go through. If you've just missed one payment on a telephone bill or a credit card payment, that is not cause for being reported for bad credit. They will obviously remind you for numerous times over numerous months and at the end of 3 or 6 months and you haven't responded, they can then go to the credit file and report you as nonpayment. Some companies operate on a 180-day payment process and if it's not cleared up within that time, they feel it's justified to do something. Always contact the people that are tracing you and always make an effort to pay.

All loan applications can be affected by bad credit. If it's a personal loan or credit card application, that's unsecured debt that you're applying for. If you have other loan defaults from previous credit cards or mobile telephone bills, then they will count very heavily towards that application. With home loans, they may still affect your application, but they will want a higher deposit for the home loan to compensate for the risk. That's secured debt; that's a different matter.

That's very important. If they've already got a default and they don't have good credit, first thing they need to do is to access their credit reference and see what the credit authorities are saying about them. They are allowed to do that and that is required under law. If there's anything that's wrong, they should challenge it and give a detailed explanation as to why that piece of information is wrong. If there are any payments that should be made that are outstanding, or there's debt that they have actually paid off, even if it was late, then they should bring that to
their attention, as well. Don't leave debt unpaid.

First of all, it depends on what kind of credit card they're using. I'd recommend that they move to a lower rate card. Secondly, they need to do some budgeting. Thirdly, we would need to direct debit payments from their bank account to the credit card, preferably the day after they're paid, then they have to live on what's remainder. They're part of the initial steps. We may also then suggest a few things that they need to tailor their life around, like having a weekend with no spending once a month in order to get rid of the debt.

Yes. I think people should be very conscious about what product they've got and what other options there are in the market. If they start off with a low interest rate credit card rather than a high interest rate credit card, then the chances are that they won't need to reconsider what product they're using. If they've started off on a higher interest rate credit card, they need to be conscious of the fact of what it's costing them in the long-term.

Shirley Liu

Shirley is's publisher for banking and investments. She has completed a Masters in Commerce (Finance) and is the author of hundreds of articles. She is passionate about helping Aussies make an informed decision, save money and find the best deal for their needs.

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4 Responses to Best Way to Pay Down $50k in Debt

  1. Default Gravatar
    Mark | November 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.

    • Staff
      Shirley | November 11, 2013

      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,

  2. Default Gravatar
    Ben | July 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%

    • Staff
      Jacob | July 24, 2013

      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.


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