Debt and retirement

Updated on 1 July 2025 | 5 minute read

You’ve been dreaming of finishing up at work and enjoying your retirement for many years. But, as your retirement date draws closer, you can’t help but worry about your debts and how you’ll manage to repay them once you stop working.

Tips to reduce your debt before you retire

In a perfect world, we’d all be able to retire debt free, however that’s not always the case. The good news is, there’s a number of things you can do while you’re still working to reduce your debts in retirement.

Not all debt is created equal

These days, most Australians enter retirement with some form of debt. Maybe it’s a mortgage, credit cards or personal loans. So, is it ever ok to retire with some debt? Consider this:

Bad debt generally costs you money

All debt is bad if you can’t afford it. Credit cards often have high interest rates and if you don’t make your minimum monthly repayments, you ultimately pay much more for a product than if you made your repayments on time, or paid for it upfront.

If you’re unable to pay a debt and it results in debt collection activity, this can lower your credit score and impact your ability to be approved for phone plans, electricity, car loans, mortgages and more.

Good debt can make you money

As a rule of thumb, good debt is borrowing to purchase something that will either grow in value or produce income (or even better, something that’ll do both).

An example of good debt is a mortgage. For one thing, you have to live somewhere. You build equity when you purchase a home, and your monthly mortgage payments could even be cheaper than paying rent. Best of all, once your mortgage is paid off, your home will be a big financial asset that has hopefully grown in value. And if your mortgage is for an investment property, it could even produce income in the form of rent.

Student loans can also be considered good debt as they’re an investment in your future, potentially opening the door to more career options and higher earning potential.

So, what you can do about bad debt?

Get a clear idea of what you owe and how much you owe by making a list of your debts.
Rank your debts from the highest interest rate to the lowest. Start by paying off the debt with the highest interest first, paying it off until it’s cleared, then move onto the next item. If you start small and focus on one debt at a time it doesn’t feel so overwhelming.
Contact your lending institutions to negotiate a repayment plan. This could include asking for a lower interest rate, small repayment amounts, or deferring your repayments for a set amount of time.
Consider consolidating your debts. This might make it easier to manage your repayments. However, this approach can sometimes cost you more in the long-term, so seek advice to check if this is the best option for your circumstances.
Look into changing your utility providers:
- Consider electricity or phone and internet provider with better deals.
- Look at bundling your utilities or insurances. This might reduce the overall cost of those bills combined.
- Call your existing provider and let them know you’re considering taking your business elsewhere; they may offer you a discount.
Consider other ways to cut costs:
- If you have multiple streaming subscriptions, ask yourself how much you’re actually using them (if at all).
- Think of small, incremental expenses that represent small savings over time. Could giving up your weekly breakfast out or daily coffee help you pay off your high-interest debt faster? This step isn’t like giving up smashed avo toast to save up for a house deposit (a ‘savings technique’ that’s been debunked), but it could be a temporary sacrifice to help pay down your debt faster.
Automate your payments where you can:
- Set up regular payments according to your debt repayment plan. The sooner the money leaves your account, the harder it is for you to spend it on other things.

Put together a budget for now, and think about a budget for after you retire

Don’t underestimate the power of a budget in helping you stay on top of your finances. Creating a budget will not only help you work out what money is coming in and what expenses you’ve got, but also what you might be able to put aside. It’s important to consider the lifestyle you’re hoping to achieve in retirement and the budget needed to fund it. Showing discipline now will help keep you on track.

Use our budget planner

To help you get started on your budget, you can use our simple budget planner.

The calculator uses estimates only. We recommend speaking with a qualified financial adviser before making decisions for your individual needs.¹

Here’s a few pointers to help you with the budgeting process:

What is a budget?

A budget is a breakdown of your money in and your money out. You can find more information and examples of how to create a budget on the Australian government Moneysmart website. You can also create projected budgets based on your anticipated expenses and income at retirement.

What you need to think about when you create your budget

Your and your partner’s income, including income from assets like investments,
Living expenses like your mortgage or rent, utilities, groceries and other bills,
Insurance costs (car, health, house, contents, life and so on),
Your cashflow (is it negative, neutral, or positive?)
Debt repayments.

How your budget can help with your financial goals

Once you’ve created your budget, you’ll be able to see if your income covers your expenses – or not – and if there’s any excess that can be put towards paying down your debt, put into savings, or put into your superannuation as a voluntary contribution.

Help is at hand

If you feel like your debt is out of control and need help, consider talking to a financial counsellor. A financial counsellor can look at your existing debt, discuss solutions, and even give you information that’ll help you negotiate the terms of repayments. Check out the Moneysmart website to learn more.

If you have a question about your Australian Retirement Trust account or need help with more complex financial planning strategies. Visit our page on advice options for more information.

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