By Paul Feeney, Founder and Chief Executive Officer, Otivo

There are two completely different things hiding behind the word "debt." One builds your future. The other slowly empties it. To your banking app, they look identical — same font, same column, same little minus sign. To your finances, the gap between them can be enormous.

Across Australian postcodes, the average household carries around $432,000 of one kind and $33,000 of the other. The thirteen-to-one ratio sounds reassuring, but it conceals an enormous spread. In one Western Australian wheatbelt postcode, the ratio nearly inverts — $391,000 of wealth-building debt against $266,000 of the kind that erodes it. Here's what actually separates the two, why the distinction matters more than almost any other in personal finance, and how to tell which is which when you look at your own balance sheet.

Quick answer

Good debt is borrowing used to acquire something with long-term value — a home, an investment property, or education that lifts future earning capacity. Bad debt is borrowing for short-term consumption that depreciates or disappears, such as high-interest credit cards, Buy Now Pay Later, or payday loans. Across Australian postcodes, Otivo's analysis puts the average good debt at $432,045 per household and average bad debt at $32,710 — though the spread is wide. As at May 2026, both categories sit at historically elevated levels nationally.

Where do these numbers come from, and why the postcode view matters

The figures in this article come from Otivo's own analysis of household debt across Australian postcodes. The dataset breaks borrowing into six categories — owner-occupied mortgages, investment property loans, unsecured personal loans, revolving credit card balances, "other loans" (mostly car and store finance), and Buy Now Pay Later — and aggregates them by location into good and bad debt totals.

That granularity matters. The usual headlines treat "household debt" as one number. The postcode view shows it's nothing of the kind. At the national level, the average household carries around $432,045 in good debt and $32,710 in bad debt. The medians — $295,800 and $29,991 — sit a bit lower, which tells you the averages are pulled up by a smaller number of very high-debt postcodes.

Zoom in to the postcode level and the spread is dramatic. The top postcode for good debt in the country — an eastern Sydney suburb — carries an average of $4.8 million per household, almost all of it in mortgages. At the other end, some regional and rural postcodes show very little good debt at all. For bad debt, the order flips. A wheatbelt postcode in Western Australia carries $266,000 in bad debt per household. A south-east Queensland community carries $239,000. A regional South Australian postcode carries close to $214,000.

The relationship between the two categories isn't a national constant. It varies enormously from one community to the next — and that variation is what makes the good-vs-bad distinction more than an academic exercise.

What actually makes debt "good"?

The label "good debt" doesn't mean the debt is harmless. It means the borrowing is being used to acquire something that holds or grows its value over time — and ideally generates income or saves money in the process.

A home loan is the textbook example. Interest rates are typically low compared to other forms of credit, the loan is secured against a real asset, and the asset itself tends to appreciate over long periods. An investment property loan works similarly, with the added feature of producing rental income and certain tax considerations. Education loans like HECS-HELP fall into the same broad category — they fund qualifications that, on average, lift lifetime earning potential.

The geographic pattern is striking. The postcodes carrying the highest good-debt totals cluster in established, high-value property markets — the eastern Sydney suburbs noted above, parts of Melbourne's inner east, certain affluent areas of Perth and Brisbane. The top three postcodes for good debt nationally all sit within a few kilometres of each other in Sydney's east, each holding north of $3.8 million per household.

The common thread isn't the size of the loan. It's the relationship between what's being borrowed and what's being acquired. Good debt is borrowing where the asset outlives the loan.

What makes debt "bad"?

Bad debt runs the other direction. The interest rate is usually high, the loan is unsecured, and the thing being purchased either depreciates immediately or disappears entirely.

A credit card balance carrying around 20% annual interest, used to fund a holiday taken three years ago, is bad debt in its purest form. The interest compounds, the holiday is over, and the repayments grind on. The same logic applies to Buy Now Pay Later balances stretched across multiple providers, payday loans, and most unsecured personal loans used for general expenses rather than a specific asset.

The geographic spread of bad debt looks very different. The postcodes carrying the heaviest bad-debt loads are concentrated in regional and rural areas — not in the wealthy suburbs that dominate the good-debt list. The Western Australian wheatbelt postcode mentioned earlier carries $266,000 in bad debt per household, almost equal to the good debt in the same community. That ratio turns the national pattern upside down.

The risk with bad debt isn't usually any single transaction. It's the cumulative effect: small purchases that don't feel like borrowing add up across multiple accounts, and the interest costs quietly compound in the background.

Where the line gets blurry — and why affluent suburbs aren't immune

The "good vs bad" frame is useful, but the data shows lifestyle debt doesn't respect socio-economic lines. One of the wealthiest postcodes in Perth — home to some of WA's highest median property values — carries $149,000 in bad debt per household alongside its $3.4 million in mortgages. An inner-Sydney postcode known for cafés and warehouse conversions sits in the top ten nationally for bad debt at $153,000 per household, despite a median household income well above the national average.

The takeaway isn't that affluent households are reckless. It's that high income and high assets don't automatically translate into low high-interest debt. Lifestyle costs scale with income, and bad debt can be a feature of any household where credit is filling the gap between aspirations and cash flow.

A few categories sit awkwardly between good and bad. A car loan is the classic edge case — a vehicle is an asset, but most cars depreciate quickly, meaning the loan can outlast the value of what it bought. A home loan funding a renovation can shift categories depending on whether the renovation adds property value. The categories are guides, not commandments.

A simple two-question test

When the label is unclear, two questions usually surface the answer.

The first: will the thing I'm borrowing for still have value when the loan is paid off? A home generally will. A holiday generally won't. A car sits somewhere in between, depending on the timeline.

The second: is the interest rate low enough that the cost of the loan is meaningfully below the long-term return of what it bought? A 6% home loan against an asset appreciating over decades passes this test fairly easily. A 22% credit card against a one-off purchase rarely does.

Two questions won't capture every nuance. But they cut through most of the marketing language around modern credit products.

Why the difference matters in practice

The reason this distinction is more than academic comes down to how debt interacts with the rest of a household's finances.

Good debt tends to coexist with savings, investment, and a stable long-term plan. The repayments are predictable, the rate is manageable, and the asset is doing the heavy lifting on the other side of the equation. Bad debt tends to crowd everything else out. High interest rates mean a larger share of repayments goes to the lender rather than the principal. Repayments compete with everyday expenses. The stress of carrying multiple balances can make longer-term planning feel impossible.

The postcode data shows the practical consequence. In postcodes where bad debt is highest, average good debt tends to be lower — not because households aren't trying to build wealth, but because high-interest debt is consuming the cash flow that would otherwise go to mortgage repayments, savings, or super contributions. The mathematics of debt compound in both directions: good debt against an appreciating asset and bad debt against a high interest rate are both compounding, but they point in opposite directions.

For most Australians, the practical upshot is that the order of operations matters: tackling high-interest bad debt before adding to good debt or to long-term investments often produces a better overall outcome.

This is one of the areas Otivo's digital advice platform — operated under AFSL and Australian Credit Licence No. 485665 — was built to help with. Mapping the debts a household holds, identifying which categories they fall into, and modelling the impact of different repayment approaches is exactly the kind of thinking that benefits from a clear, personalised view.

Frequently asked questions

Is a car loan good debt or bad debt?

A car loan sits between the two. A vehicle is a real asset, but cars depreciate rapidly — particularly new ones. A low-interest loan on a reliable, essential car is closer to good debt; a high-interest loan on an expensive or short-term purchase is closer to bad. The interest rate and the depreciation curve of the vehicle do most of the work in deciding which side of the line it lands on.

Can good debt become bad debt?

Yes. Good debt can become problematic when the repayments stretch beyond what a household can comfortably manage, when the underlying asset loses value (for example, in a falling property market), or when the loan is restructured into a higher-rate facility. The label describes the typical case, not a guarantee.

Does HECS-HELP count as good debt?

HECS-HELP is generally treated as good debt because it funds qualifications that tend to lift long-term earning capacity. Its repayment structure is income-contingent — repayments only kick in above a certain income threshold, and the balance is indexed to inflation rather than charged at a market interest rate.

Where to from here

Sorting debts into good and bad is a useful starting point. The more valuable work usually comes next: understanding which debts are draining cash flow fastest, which can be restructured, and how repayments fit alongside other financial goals like building super or growing savings. Otivo's debt advice module is designed to walk through exactly that — turning a list of balances into a clear plan for what to tackle and in what order.

Sources

• Otivo postcode-level household debt analysis, May 2025. Aggregated household debt data across Australian postcodes covering owner-occupied mortgages, investment property loans, unsecured personal loans, credit card balances, other loans (car and store finance), and Buy Now Pay Later.
• ASIC MoneySmart, "Managing debt." moneysmart.gov.au/managing-debt
• Australian Taxation Office, "Study and training support loans." ato.gov.au

Disclaimer

The information in this communication is current as at May 2026 and has been prepared by Otivo Pty Ltd ABN 47 602 457 732, AFSL and Australian Credit Licence No. 485665. This content is general information only and has been prepared without taking into account your objectives, financial situation or needs. It is not personal financial or taxation advice and should not be relied on as such. Before acting on any information, you should consider its appropriateness having regard to your personal circumstances. This material must not be reproduced in whole or in part, or posted on any social media platform, without the prior written consent of Otivo Pty Ltd.