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How much debt is too much? The signs it's starting to weigh on you

11 minutes| May 26 2026

By Catherine Mulholland, Head of Client Services

It's 2am, and the numbers are running again. The credit card. The car loan. The personal loan. The Buy Now Pay Later plans that don't quite feel like debt but show up as direct debits on Friday. The mortgage. Somewhere in that mental list is the line between manageable and not — but it's hard to see where, and the act of trying to see it is what's keeping you awake.

There's no universal threshold for how much debt is too much. A $500,000 home loan is unremarkable for a dual-income household earning $200,000; the same loan would be crushing on a single income at half that. The numbers don't tell the story on their own. What matters is the relationship between debt, cash flow, and life circumstances — and there are recognisable signs that debt has shifted from a manageable feature of household finances into something that's starting to weigh. Most of those signs show up well before any of the obvious markers — missed payments, default notices, calls from creditors. Noticing them early is what gives the most room to act.

Quick answer

There's no fixed threshold for how much debt is too much — affordability depends on income, expenses, and life stage. But the early signs that debt is becoming a problem tend to cluster around four patterns: making minimum payments only, using new credit to cover old obligations, financial stress affecting sleep or relationships, and a growing sense of avoidance around looking at the actual numbers. As at May 2026, the average Australian household carries around $32,710 in bad debt, though the figure varies enormously by postcode and circumstance.

What's the average bad debt across Australian households?

The figures in this article come from Otivo's analysis of household debt across Australian postcodes. The dataset breaks borrowing into six categories — owner-occupied mortgages, investment property loans, unsecured personal loans, credit cards, "other loans" (mostly car and store finance), and Buy Now Pay Later — and aggregates them into "good debt" and "bad debt" totals for every postcode. Bad debt covers the high-interest, unsecured borrowing that typically funds short-term consumption rather than building long-term wealth.

The reason that level of detail matters for the question of "how much debt is too much" is that the national averages obscure as much as they reveal. The average bad debt per household across Australian postcodes is $32,710. The median is $29,991. Both numbers are useful as rough benchmarks. Neither tells you whether your own debt level is unusual.

The postcode view does. In one Western Australian regional postcode, the average household carries $266,000 in bad debt — eight times the national average. In some affluent inner-Sydney postcodes, the figure sits closer to $80,000 — meaningfully above the average, despite high household incomes. In some regional and rural postcodes, the figure is under $10,000.

The other point the postcode data makes is that high income doesn't reliably protect against high bad debt. One of WA's wealthiest postcodes — known for some of the state's highest property values — sits in the national top ten for bad debt per household. This is why "how much is too much" is almost never a question of comparing yourself to a national figure. It's a question of looking at your own picture and noticing the signs.

Why there's no single "too much" number

The textbook rule of thumb says debt repayments shouldn't exceed 30–40% of gross income, with housing-related debt making up most of that and unsecured debt staying well below 10%. The rule is useful as a rough yardstick, but it doesn't account for the things that actually determine whether a given debt load is comfortable: how stable the income is, what fixed costs the household has, whether there are dependants, what stage of life the borrower is in, and how much buffer exists for unexpected expenses.

Two households with identical debt-to-income ratios can be in completely different positions. One has a stable salary, low housing costs, and modest fixed obligations. The other has variable income, high rent, and several school-age children. The numbers look the same on paper; the experience of carrying that debt is wildly different.

This is why the more useful question isn't "how much debt is too much" — it's "what does my debt feel like to carry, week to week?" The signs below are the ones that tend to surface when the answer is "heavier than it should."

The early signs

These are the patterns that usually appear first, often months or years before any obvious financial difficulty.

Sign one: paying only the minimum on revolving credit. A credit card balance that's been steady for six months while regular payments are being made is a strong signal that the payments are covering interest with very little going to principal. This isn't necessarily a crisis, but it's a sign that the debt isn't moving in the right direction.

Sign two: using new credit to cover old obligations. Putting a utility bill on a credit card because the bank balance is short. Signing up for a new Buy Now Pay Later arrangement to pay an unexpected expense. Drawing on a redraw facility for grocery shopping. None of these are inherently problematic in isolation. As a pattern, they suggest that current cash flow isn't keeping up with current expenses, with credit filling the gap.

Sign three: a growing list of "small" debts. The point isn't the size of any single debt — it's the count. Otivo's postcode analysis shows the typical Australian household carries five or six separate debt accounts simultaneously: a mortgage, possibly an investment property loan, a credit card, an unsecured personal loan, "other loans" (often a car finance or store finance), and one or more BNPL plans. Even when each balance is modest, the cumulative cash flow impact is meaningful, and the administrative load of keeping it all current is significant.

The harder signs

These tend to show up later, often once the early signs have been present for a while.

Sign four: missing payments not because the money isn't there, but because the cash flow timing has become too tight to manage. The funds exist somewhere in the month, but they're never in the right account on the right day. This is usually a signal that the household is running too close to the line, with no buffer to absorb the normal lumpiness of bills and pay cycles.

Sign five: financial stress affecting sleep, mood, or relationships. Lying awake at 2am running numbers. Avoiding conversations about money with a partner. A persistent low-level dread when the phone rings or the mail arrives. The Australian Psychological Society has consistently identified financial concerns as one of the leading sources of personal stress in its Stress and Wellbeing surveys, and the physical and relational symptoms tend to track the underlying financial pressure closely.

Sign six: avoidance of the actual numbers. Not opening statements. Not checking the balance. Not totalling up what's owed across all accounts. Avoidance is often the most reliable indicator that a person already knows, on some level, that the picture isn't good. The numbers feel worse when they're left vague, but the act of avoiding them reinforces the sense that they're unmanageable.

The "back-of-envelope" check most people don't run

When the question is whether debt is starting to weigh, one calculation usually surfaces the answer faster than any rule of thumb.

Add up every minimum monthly debt repayment — home loan, car loan, personal loan, every credit card minimum, every active BNPL plan, every other recurring credit obligation. Compare that total against monthly take-home pay.

  • Under 30%: debt levels are typically in the comfortable range, though this depends on other circumstances.
  • 30%–45%: the household has some headroom but limited margin for shocks.
  • Above 45%: debt repayments are likely consuming the share of income that would otherwise go to saving, investing, and absorbing unexpected expenses.

A second useful comparison: how does total household bad debt compare to the national average of around $32,710? Sitting well above that figure doesn't automatically mean trouble — high-income households can absorb higher absolute amounts. But the comparison is a useful starting point for thinking about scale. The figure is not a target. It's just a marker.

This is a rough check, not a diagnosis. But for most people, the number itself is informative — particularly if they haven't added everything up in a while.

What changes things

Recognising the signs is the precondition for everything else. Beyond that, the patterns that tend to move households back into a healthier debt position usually involve some combination of three things.

Visibility. Every debt, every balance, every interest rate, every due date, written down in one place. Most people are surprised by what surfaces when they actually do this. The typical Australian household has more open debt accounts than it estimates from memory.

A structured approach to repayment — whether that's the avalanche method (highest interest first), the snowball method (smallest balance first), or some form of consolidation. The specific approach matters less than picking one and following it.

Changing whatever is feeding the pattern. If new credit is regularly being used to cover old obligations, the underlying cash flow issue needs attention alongside the debt itself. Otherwise the same balances will reappear after they're paid down.

Frequently asked questions

Is having debt always a sign of financial trouble?

No. Debt is a normal part of most Australian households' financial picture, particularly home loans. The question isn't whether debt exists, but whether the level and mix of debt is sustainable relative to income and life circumstances.

Where can I get help if my debt is unmanageable?

Financial counselling is free, confidential, and independent. The National Debt Helpline (1800 007 007) connects callers to financial counsellors across Australia. Financial counsellors are different from financial advisers — they specialise in working with people in financial difficulty, including negotiating with creditors and identifying hardship options.

Will dealing with my debt affect my credit score?

It depends on the approach. Making payments on time and clearing balances tends to improve a credit profile over time. Formal hardship arrangements, debt agreements, and bankruptcy each have different and longer-lasting effects on credit reporting. For most people, addressing the debt earlier — before any formal arrangement is needed — has the least impact on credit reporting.

Where to from here

The signs above aren't a diagnosis — they're prompts to look more closely. For many Australians, the most useful next step is simply gathering the full picture: every debt, every balance, every interest rate, and a clear-eyed look at how it all fits against current income. Otivo's debt advice module — provided under AFSL and Australian Credit Licence No. 485665 — is designed to make that mapping straightforward, and to model the impact of different repayment approaches without anyone having to do the maths by hand.

Sources

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.

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