7 tips for practising safe debt

Avoiding debt completely just isn’t realistic for most people. So let’s talk about it! 

If you’re using credit – whether it's Buy Now, Pay Later or credit cards – here’s how to do it safely and make it work for you.

1. Always repay more than the minimum

With Buy Now, Pay Later deals like Afterpay, Zip or Laybuy, the most important thing is to make repayments on time to avoid getting stung by late fees. 

But with credit cards, when you get your credit card statement, there are a couple of numbers to pay attention to. One says ‘minimum payment’ and the other is something like ‘payment to clear balance’. More often than not we just pay the minimum, which feels like we’re ticking a box and staying on top of debt.  

The trouble is, paying the minimum means that you will pay the maximum in interest! Yet for every dollar you pay above that, you are cutting down your interest costs and reshaping the debt in your favour. 

Pay more than the minimum to get on top of your debt and ditch it faster.  

2. Master your credit card

Pick your card carefully.  

Find the credit card that best suits your needs, with the lowest interest rate you can get. Know when your statements are due so you can make sure you pay back all you’ve spent that month on time. 

Use your card like it’s cash.  

By that we mean, only spend what you can pay off that month. You may have heard that in order to boost your credit score, you shouldn't pay off your credit card in full. This is one of the biggest myths! It certainly is best to pay off your card in full every month. You’ll avoid interest that way, too. 

But don’t withdraw cash on your card.  

I know a few people who learned this one the hard way. Make it a rule not to take cash out on your credit card unless it’s a true emergency.  

Why? The interest rate becomes much higher than the standard – typically 18.50–25.99% – and it’s charged from the date of the cash advance rather than having up to 55 days interest-free like you do with a normal purchase.  

It will end up costing you way more than you thought. 

3. Stick to one loan at a time 

Buy Now, Pay Later purchases, loans, hire purchases and credit cards add up. That $20 a week might sound easy, but once you account for all of your other expenses, it becomes a stretch.  

Especially if it’s $20 a week here, $5 a week there, $40 a month over there – if you’re taking on multiple forms of credit on a regular basis, repayments quickly get out of hand. Sticking to the ‘one at a time’ rule keeps things simple. 

4. Remember whose money it is (hint: it’s not actually yours)

Even with Buy Now, Pay Later deals, you are borrowing most of the cost of an item from a company like Zip, Afterpay or Laybuy. They are giving you credit, which can feel like your money, but it's really only the amount that you can borrow.

I remember receiving a ‘free’ overdraft when I was at uni. It felt like it was my money – and I often found myself sitting at the negative-$1000 limit, and feeling fine about it. It felt normal. This meant I became comfortable living in debt.  

It took me years to move back to living above a zero balance, and that entire time for me to truly understand: it wasn’t my money. After uni, my free overdraft was no longer free, and I was paying heavily for the privilege.  

Not just in fees, but in feelings too. The burden of debt is one you only truly understand when you’re out the other side.  

5. Consider consolidating your debt (as long as it's right for you!)

Combining two or more debts into one means you’ll have one (hopefully lower) interest rate, one regular payment and one lender to deal with. This is called debt consolidation.  

Consolidating or refinancing loans can work out well if it means paying less in fees and interest. But there are risks! 

• It may be a very short-term fix if you can’t meet the repayments on the new loan. 
• You might have lower repayments, but over a longer term it can add to the overall cost because you’re paying interest for longer.
• There can be extra fees and charges, including ‘hidden’ fees for alterations, late payments and payment defaults. Lenders may even charge extra for paying off existing loans early. 
• Companies specialising in debt consolidation may charge higher interest than a bank. Talk to your bank about what they can offer before signing up with a new company. 

To reduce your risks, find out the total cost of consolidating before signing up. Shopping around and reading the fine print helps, too. 

6. Find out the true cost of borrowing with Sorted's calculator

When we’re thinking about taking on debt, we tend to think in terms of the weekly amount we’ll be paying. A repayment of $5 or $50 a week might sound manageable (psychic maths, anyone?), but try plugging your numbers into our debt calculator to see how much it will cost you in total, including fees, interest and other costs.  

This can help you decide if taking a loan out on a $1000 purchase is worth the extra amount you’ll end up paying in interest and fees.  

It can help to compare two loans – they might have different terms, repayment frequencies, fees or interest rates, which may mean you end up paying less overall with one or the other. 

Keep in mind the other costs that often come with debt if things don’t go well – potential late payment fees, relationship stress, loss of confidence and the impact on your mental wellbeing. 

7. Get help to stay on top of your debt

If you’re regularly having to use credit to make ends meet, reach out to MoneyTalks for some personal support. 

Most people don’t think to get help until it’s too late. But here’s a little nudge/reminder that the incredible financial mentors at MoneyTalks can help you get on top of debt before it becomes an issue.  

It’s free, it’s confidential, and it’s for everyone. Give them a call!