Which debt solution is right for you in Australia?

The right debt solution depends on how serious your financial situation is. If you can still cover your bills, a budget reset may be enough. If you’re struggling to keep up, hardship support or debt consolidation may help. If your debts are unmanageable, formal options like debt agreements or bankruptcy may be worth considering.

Quick answer: which debt solution is right for you?

• If you can still pay your bills → Budget reset
• If your situation has recently changed → Hardship support
• If you’re juggling multiple debts → Debt consolidation
• If you need an informal plan with your creditors → Debt arrangement
• If you can’t realistically repay → Formal solutions (debt agreement or bankruptcy).

Debt doesn’t usually hit all at once. It creeps up through higher living costs, unexpected bills, or changes to your income. If you’re juggling repayments or thinking “I can’t pay my debts, what should I do?”, this is more common than you might think.

Costs have been rising, and pressure is real. In the December 2025 quarter, personal insolvencies in Australia increased by 14% year-on-year, according to the Australian Financial Security Authority (AFSA). That doesn’t mean bankruptcy is the answer, it means more households need a clear plan. Start by understanding where you’re at, then choose the right path forward.

There are a few common reasons people find themselves in debt, and most come down to changes in costs, income, or ongoing financial pressure:

Increased cost of living

As everyday living expenses rise, it can put pressure on even well‑planned budgets. There was a 2.3% to 4.2% increase in the 12 months up to the December 2025 quarter, with things like housing and food amongst the big contributors. That kind of squeeze can leave people reaching for credit cards, personal loans, or Buy Now Pay Later just to keep up with the essentials.

Major life events

Another major driver is a sudden life event. Losing your job, working fewer hours, a relationship breakdown, having a baby, or dealing with illness can all be a blow to your budget. You may have been managing just fine, but suddenly, everything changes.

Ongoing financial pressure over time

Then there’s the debt that’s been growing on you over time. Small gaps between income and expenses can build up, and juggling multiple repayments or commitments can gradually make things harder to manage.

If you can’t pay your debts, the most important thing is to act early, not avoid the situation. Start by understanding exactly what you owe, prioritise essential bills, and speak to your creditors about hardship options before things escalate.

If you’re behind on bills or struggling to keep up, here’s what to do next:

• Get clear on your numbers: list all debts, balances and repayments
• Prioritise essentials first: housing, utilities, food and transport
• Contact your creditors early: ask about hardship support or payment plans
• Avoid taking on more debt: this often makes the situation worse
• Look at your structure, not just the debt: most issues come back to cash flow.

If your financial situation is still manageable, with a bit of structure and support, focusing on your budget and putting a simple plan in place may be enough to help you get back on track. If, however, things have become completely unmanageable, it may be time to consider more formal options in your debt management plan.

Before you start looking into debt solutions, it’s worth getting a clear picture of what you’re actually up against.

Your income doesn’t always determine your financial situation. It’s how much of it is already committed to expenses and debt that really matters.

A budget problem usually means your income can cover the essentials, but there’s not much left over once everyday expenses and occasional costs like car rego, school fees or annual bills are factored in.

A debt problem usually means your budget’s doesn’t not have enough room to breathe, let alone make your debt repayments. You might be scraping by on the bare minimum, rearranging debt from one place to another, or using one credit card to keep up with the payments on another.

A financial crisis is when things have gone from bad to worse. You might be regularly missing payments, using credit to pay for the basics, putting off calls from lenders, or struggling to keep up on multiple accounts at once.

The right debt relief solutions depend on your cash flow, debts, and what you can realistically afford. The goal isn’t just to deal with the debt, it’s to find a path you can actually stick to.

Here are the main options to consider:

1. A budget reset

If your situation is still manageable, the most effective solution is often getting control of your cash flow with a personalised budget to help you prioritise repayments, manage expenses, and consistently reduce debt over time. Download our free Personal Budget Template to see where your money is going, take control of your repayments, and build a clearer path out of debt.

2. Creditor negotiation

If you’re under pressure, you may be able to negotiate directly with your credit providers. This can include reduced monthly repayments, paused payments, or waived interest. Acting early here can prevent things from escalating.

3. Financial hardship support

If your situation has changed, such as job loss, illness, or reduced income, lenders may offer hardship arrangements. This can give you breathing room while you stabilise your finances. ASIC says, lenders must consider any hardship requests under Australian consumer credit law.

4. Debt consolidation

Consolidating debt into one repayment can save on fees and interest payments and make things simpler to manage. It can work well if you have stable income, but it won’t fix an underlying budget issue. If you’re considering this option, it’s worth understanding the pros and cons in more detail → Is debt consolidation right for you?

5. Debt arrangements (informal repayment plans)

A debt arrangement is an informal, non-legal agreement between you and your creditors, sometimes set up with the help of a third party like MyBudget. It focuses on creating a manageable repayment plan based on what you can realistically afford.

This can help reduce financial pressure without entering a formal insolvency solution, and is often a good step before considering more serious options.

6. Debt agreements (Part IX Debt Agreement / Part X Debt Agreement)

Debt agreements are formal, legally binding agreements under the Bankruptcy Act 1966 that allow you to repay part of your debts over time. These are typically used when debts are no longer manageable but bankruptcy can be avoided.

7. Bankruptcy guidance

Bankruptcy is usually a last resort when no other options are viable. It can clear most debts, but comes with long-term impacts on your credit report and financial future.

How MyBudget can support each debt solution

Managing all of this on your own can feel overwhelming, especially when you’re trying to keep up with bills, juggle different repayments, and work out what the right next step is. You don’t have to figure it all out by yourself.

Here’s how MyBudget can help across each of these options:

• Budgeting support → Tailored plans to manage expenses and repayments
• Creditor negotiation → Help reducing pressure from lenders
• Credit card debt help → Strategies to tackle high-interest debt
• Personal loan support → Restructure repayments to suit your budget
• Mortgage refinancing → Reduce pressure on home loan repayments
• Debt arrangements → Informal repayment plans tailored to your situation
• Debt agreements → Structured solutions for unmanageable debt
• Bankruptcy guidance → Support when no other option fits
• Future planning → A clear path to becoming debt-free.

Get help

Use the table below to quickly identify where you’re at and what your next step might look like:

Debt consolidation and debt agreements are very different solutions. One restructures your repayments, while the other is a formal insolvency agreement under Australian law.

Use the comparison below to quickly see how each option works and which might suit your situation:

If you’re unsure which option applies, book a free personal budget appointment to get a clear plan for your situation.

Bankruptcy can be a lifesaver in extreme circumstances, but it comes with it’s own set of consequences. It can burden your credit file, affect your work prospects and make it harder to borrow money. So while it might be a last resort for some people, it’s not usually the first option.

AFSA’s insolvency statistics show that more and more Aussies are struggling financially, but it doesn’t mean bankruptcy is the answer for everyone. For most people, it’s worth starting with the basics, getting a clear view of your money, prioritising essentials, and speaking to your creditors early about support or adjusted repayments.

If you need more information, see our comprehensive guide to Bankruptcy in Australia.

Don’t know which debt solution is right for you? MyBudget helps you understand your income, expenses and debts, so getting the debt help you need is simple and clear.

MyBudget will:

• Create a structured budget based on your real income and expenses
• Negotiate with creditors to reduce pressure on repayments
• Consolidate or restructure debts where appropriate
• Manage credit card, personal loan and mortgage repayments
• Explore formal options like debt agreements or bankruptcy if needed
• Build a plan to get out of debt faster and improve your financial position over time.

With over 130,000 Australians helped, we focus on practical, achievable plans that support your financial goals.

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or call us today on 1300 300 922.