How to borrow wisely without sacrificing long-term goals
Borrowing money is a common part of life, whether it's for a home loan, car finance, a credit card, or a personal loan. The key is to ensure that borrowing today doesn't sabotage your long-term financial goals.
In Australia, debt is a regular part of everyday living. According to the Australian Bureau of Statistics, the average household debt has risen significantly over the past decade, mainly due to mortgages, personal loans, and credit cards. With rising living costs and higher interest rates, managing borrowing responsibly has become more important than ever.
Here's how to align your borrowing decisions to build a secure financial future.
1. Understand your long-term goals
Before borrowing, make sure you understand your financial priorities. Your goals might include buying your first home, starting or growing a business, saving for retirement, funding children's education, or simply travelling the world.
Clarity around your goals helps you evaluate whether a new loan supports or hinders your broader vision. For example, taking out a large car loan may feel justified now, but does it compromise your ability to save for a home deposit within two years?
2. Differentiate between good debt and bad debt
Not all debt is created equal! Being aware of the type of debt you take on is crucial to maintaining alignment with your long-term financial health.
Good debt (when used wisely) includes:
- Student loans – investing in education may boost future income
- Home loans – property can grow in value over time
- Business loans – when they help generate profit or growth
Bad debt, on the other hand, often includes:
- High-interest credit cards
- Buy-now-pay-later schemes
- Personal loans for short-term wants, like holidays or luxury items (unless they are within your budget)
3. Borrow with a purpose
Just because you can borrow doesn’t mean you should. Lenders assess your ability to repay, not whether the loan fits your lifestyle or goals. Before signing, ask yourself:
- Can I afford this comfortably if interest rates rise?
- What if my income changes?
- Will this impact my ability to save or invest?
Borrowing should be a strategic choice, not a reaction to short-term wants.
4. Budget for repayments and savings
A smart money management plan goes beyond minimum repayments. Your budget should cover:
- Emergency savings
- Super contributions or retirement planning
- Short-term priorities like home repairs or travel
- Extra repayments to reduce interest and shorten loan terms
A good rule of thumb is the 50/30/20 rule:
- 50% for needs
- 30% for wants
- 20% for savings and debt repayment
Tools like ASIC's MoneySmart Budget Planner can help you get started.
5. Regularly review your borrowing
Debt isn’t a set-and-forget deal. Make time to review your loans at least once a year. Ask yourself:
- Could I get a better rate?
- Can I consolidate debts into one manageable repayment?
- Is it time to refinance?
Keeping on top of your borrowing can save you thousands over time
6. Avoid the debt spiral of lifestyle creep
Earning more? Great. But instead of upgrading your car or splurging on lifestyle perks, use that extra income to get ahead. Pay down your loans faster, build your emergency fund, or make voluntary super contributions. This mindset helps protect your financial health long after payday.
7. Seek professional help
Feeling overwhelmed by repayments or not sure where to start? You’re not alone. A registered Debt Agreement administrator like Safe Debt Management can help you:
- Restructure debt
- Plan repayments aligned to your goals
- Develop a plan that suits your income and lifestyle
Money management isn’t one-size-fits-all. If your finances are complex—especially if you run a business or have dependents—a custom strategy is often the best path forward.
Take control of your debts today.
Borrowing isn't inherently bad - it's unmanaged debt that causes issues. When used strategically, borrowing can help you achieve your financial goals more quickly. The key is to be intentional: understand why you're borrowing, make sure it aligns with your overall financial plans, and regularly review your progress. By borrowing wisely, staying on top of repayments, and aligning your financial decisions with your goals, long-term security becomes achievable.
If you are stressed or anxious about your finances due to difficulty meeting your repayments, consider Safe Debt Management's Pay-In-One debt assistance program. This program is for individuals with $5,000 or more in debt across multiple creditors who struggle to manage payments. It's a confidential and personalised service that might provide the breakthrough you need. Take the first step today- reclaim your peace of mind, pay off your debt, and secure your future!