Consequences of debt

If you have late or unpaid debts these can:

  • affect your credit rating
  • result in you being unable to get a bank loan or credit in the future.

Ways people create debt

Credit cards

The example below is typical of the interest charged and what you will pay for money borrowed on a credit card.

Original amount borrowed


Interest rate


Minimum required monthly repayment*


Time to repay at minimum amount

10.6 years (127 months)

Total amount to repay


Extra paid because of the credit charged


This example assumes a minimum allowable repayment of $10 and no annual fee on credit card.

Remember: credit cards may be easy to get and use but it is also easy to build up a debt that can take years to pay back.

Note: If you were to pay an additional $10 per month the repayment time would decrease to 4.2 years (50 months) and the extra paid in interest would be $440.

Interest-free purchases

If you make an interest-free purchase you need to make sure you repay the full amount before the end of the interest free period. If you do not repay the full amount before of the end of the interest free period you may be charged very high interest rates backdated to the day of the purchase.

The example below is typical of an interest-free purchase made at a large department store and what costs are involved in money borrowed on the credit card that is necessary for the purchase.

Original amount borrowed


Interest free period

30 months

Interest rate (applied after interest-free period)


Minimum required monthly repayment

3% of balance or $25 (whichever is greater)

Amount repaid by end of interest-free period by paying the minimum required monthly repayment


Amount to be repaid when interest will be added


Time to repay at minimum amount

7.5 years (90 months)

Total amount to repay


Extra paid because of the interest charged



Note: If you did not make any repayments during the interest free period and only paid back the minimum 3% or $25 (whichever is greater) each month, it would take you just under 20 years to repay.

Direct debits

If you set up automatic direct debits from your account, make sure that you:

  • know the date that the amounts are due
  • have enough money in your bank account to pay for the transaction.

Note: if you do not have enough money in your account when a direct debit payment is due, you could be charged overdraft fees of up to $40 by the bank each time.

Independent credit providers

Loans from pawnbrokers and other short-term lenders can have:

  • large fees
  • very high interest rates.

Some independent credit providers are not bound by industry standards that includes a commitment to help you if you get into financial difficulties.

The Money Help website has advice on short-term loans.

Mobile phone and apps

If you are thinking about a mobile plan make sure you:

  • shop around and compare deals with different companies
  • choose a mobile plan that is affordable according to your current income.

Note: if you are on a tight budget pre-paid phone plans are cheaper but the costs of calls and other services are more expensive.

If you have a smart phone:

  • make sure your plan has an adequate data allowance. Exceeding your limit can be very expensive
  • connect to wireless networks to download content such as audio and video
  • turn off data roaming if you go overseas or outside your network’s coverage.

Note: if you are downloading apps for your mobile phone, make sure that the download does not sign you up to an ongoing service. Ongoing services that you may accept as part of downloads may cost hundreds of dollars.