7 Mistakes to Avoid When Paying Off Debt

Trying to get out of debt? Great! But beware — even with the best intentions, many Australians fall into traps that slow their progress or make things worse. Here are seven mistakes you should avoid when paying off debt in 2025.

1. Paying Only the Minimum

Paying just the minimum amount on your credit card will barely reduce your balance. You’ll end up paying more interest and staying in debt longer.

2. Ignoring Your Interest Rates

Focus on paying off debts with the highest interest first — not the smallest balances. This method is called the “avalanche” strategy and it saves you the most money.

3. Taking on New Debt

Using a personal loan or balance transfer card wisely can help — but taking on new, unnecessary debt while trying to pay off old ones is a big red flag.

4. Not Having a Budget

Without a plan, your money disappears. A budget helps you track spending and ensure your debt repayments are consistent and realistic.

5. Closing Paid-Off Credit Cards Immediately

Unless the card has high fees, it’s better to keep old accounts open to improve your credit history and utilization ratio.

6. Failing to Build Emergency Savings

Unexpected expenses can force you to borrow again. Even a small emergency fund ($500–$1,000) can help prevent this.

7. Not Seeking Help

There’s no shame in asking for help. Speak to a financial counsellor, use tools from MoneySmart, or talk to your bank about hardship options.

Final Thought: Debt freedom is possible — but it requires smart habits, patience, and the courage to avoid repeating past mistakes.

Disclaimer: This article is for informational purposes only. For tailored advice, speak with a licensed financial adviser.