Do You Control Your Money or Does Your Money Control You?

Why Financial Planning Matters — and What’s at Stake

In an era of rising living costs, volatile markets, and high interest rates, sound financial planning is not a luxury — it is essential to control your money. Without a thoughtful plan, individuals can lose control of their money, gradually slipping into debt traps or insolvency. Conversely, good planning gives you clarity, resilience, and the ability to act rather than being forced to react.

Here’s what financial planning offers:

1. Clarity and direction — You begin by mapping your income, expenses, assets, liabilities, goals and risk tolerance. That baseline helps you make better decisions and avoid “roaming in the dark.”
2. Buffering against shocks — Emergencies (job loss, health expenses, economic downturns) are inevitable. A plan anticipates them via emergency funds, insurance and contingency strategies.
3. Debt management and reduction — Rather than letting interest eat away your finances, a plan helps you prioritise which debts to pay off first, negotiate terms, or restructure where possible.
4. Goal alignment and trade-offs — Whether saving for a home deposit, retirement, children’s education or travel, a plan allows you to make conscious trade-offs rather than letting discretionary spending or impulsive borrowing drive outcomes.
5. Psychological discipline — A plan instills discipline and helps guard against behavioural biases, emotional spending or denial of escalating problems.

But many Australians are failing to plan — or failing to act on their plan — and the consequences are now becoming painfully visible in rising insolvency and debt statistics.

Recent Trends: Insolvency, Bankruptcy & Credit Card Debt in Australia

To understand the urgency, let’s look at the latest data.

Personal Insolvency / Bankruptcy Trends

• In 2023–24, Australia recorded 11,644 new personal insolvencies, an increase of 17.3% over the prior year. (Australian Financial Security Authority)
• AFSA projects insolvency volumes may rise further to about 13,400 in 2024–25, and 14,950 in 2025–26 given continuing financial stress. (Australian Financial Security Authority)
• In the three-month period to June 2025, there were 3,179 new personal insolvencies, up from 2,947 in the same quarter in 2024 — a 7.9% year-on-year increase. (Australian Financial Security Authority)
• In July 2025 alone there were 1,247 new personal insolvencies, compared to 1,012 in June 2025. Of these, 635 were bankruptcies, 595 were debt agreements, 16 were personal insolvency agreements, and 1 was an insolvent deceased estate. (Australian Financial Security Authority)
• About 49% of new insolvency entrants in 2023–24 had liabilities under $50,000 — meaning many cases are not about vast debts, but people overextended on smaller debts they could no longer service. (Australian Financial Security Authority)
• Roughly 28.3% had debts exceeding $100,000. (Australian Financial Security Authority)
• Business-related personal insolvencies (e.g. sole traders, small business operators) made up ~25.1% of new insolvencies but accounted for ~75% of the total liabilities in the system, meaning those cases tend to involve heavier debt burdens. (Australian Financial Security Authority)

These data points make clear that personal insolvency is rising — and many people with modest debts are being pushed into formal distress.

On the corporate side, insolvencies are also surging:

• ASIC reports that company insolvencies are rising sharply, poised to reach levels not seen in over a decade. (ASIC)
• In the recent period, collectable debt from insolvent small firms has more than doubled compared to pre-pandemic levels — especially tax liabilities. (Reserve Bank of Australia)

This signals broader stress in the economy and underscores that indebtedness is not limited to households but also affecting small businesses.

Household Debt & Credit Card Trends

Beyond formal insolvency, many households are under mounting debt pressure:

• Household debt in Australia is extraordinarily high. In Q1 2025, household debt rose to 112.70% of GDP, up from 112.10% in Q4 2024. (Trading Economics)
• According to the Australian Bureau of Statistics, in 2021–22, average household debt was AUD 261,492, increasing 7.3% that year — while disposable incomes grew only 3.7%. (Australian Bureau of Statistics)
• Credit card debt remains a chronic problem. As of the most recent data:
   • Total credit card debt in Australia: AUD 42.42 billion (Money.com.au)
   • There are approximately 12.12 million credit card accounts in Australia. (Money.com.au)
   • The average balance per credit card account is about AUD 3,500. (Money.com.au)
   • However, among balances on which interest is charged, the average is AUD 1,626. (Money.com.au)
• Credit card use is still substantial: Australians recorded record personal credit card spending of AUD 28 billion in December 2024, burdening many with more interest-accruing debt. (The Guardian)
• The portion of credit card debt that is accruing interest has recently increased: in December that figure rose by over AUD 236 million from the prior month, reaching AUD 17.8 billion. (The Guardian)
• Notably, in July 2025, Australians paid down AUD 274 million in credit card debt — the largest monthly reduction since July 2022. Still, total personal credit card debt was reported as AUD 17.7 billion (for those accounts carrying a balance). (News.com.au)

What this suggests: many Australians carry credit cards, and a nontrivial share of those balances are interest-bearing, meaning they are actively draining resources rather than providing flexibility.

Loan Arrears and Vulnerable Borrowers

• Loan arrears (i.e. missed payments) remain elevated among highly leveraged and lower-income households. (Reserve Bank of Australia)
• Households with high loan-to-value or high loan-to-income ratios are more likely to fall into arrears. (Reserve Bank of Australia)
• The RBA’s “household cash-flow channel” analysis notes that because most households hold more interest-sensitive debt than interest-sensitive assets, when interest rates rise, cash flow is squeezed — and that effect has returned to pre-pandemic strength. (Reserve Bank of Australia)

Rising Debt & Insolvency as Signals of Mismanagement

Taken together, these data point to more than cyclical stress. They point toward structural weaknesses in financial behavior and planning at the household level. Below are some of the root issues:

1. Excess Leverage & Poor Debt Structure

Many households carry debt not tied to appreciating assets (e.g. credit cards, personal loans, BNPL) rather than low-cost, income-producing or asset-backed debt. When interest rates rise or incomes stagnate, servicing these debts becomes far more burdensome.

2. Lack of Emergency Buffer / Savings

A recurring theme in insolvency statistics is that many people enter distress not from catastrophic debts but from inability to absorb even modest cash-flow shocks. The fact that nearly half of insolvency entrants in 2023–24 had liabilities under AUD 50,000 underscores this: it’s not always massive debts, but insufficient buffers. (Australian Financial Security Authority)

Without emergency savings or contingency planning, people may tap credit or delay repayments until things unravel.

3. Behavioural Biases, Overconfidence & Temptation

It is tempting to underestimate the compounding effect of interest or overestimate future earnings. Some common behavioral pitfalls include:

• Present bias: prioritising current consumption over long-term stability
• Overconfidence: expecting future salary increases or windfalls
• Denial or procrastination: ignoring the problem until too late
• Lifestyle creep: gradually increasing spending as income rises

Without a framework (i.e. a plan) to contain such biases, people drift into unsustainable debt.

4. Poor Debt Prioritisation & Lack of Negotiation

Many individuals do not actively manage their debt portfolio — e.g. choosing which debt to pay down first (high rate vs. low, secured vs. unsecured), or negotiating with creditors (e.g. hardship arrangements, balance transfers). As a result, interest charges or penalties compound faster than principal is reduced.

5. Structural Pressures: Cost of Living, Inflation, Rising Interest Rates

No discussion is complete without acknowledging external headwinds. The post-COVID world has seen:

• Elevated inflation and cost of necessities
• Rising interest rates, which increase the burden of variable debt
• Stagnant wage growth for many, eroding discretionary capacity
• Increases in everyday costs (energy, groceries, housing) squeezing budgets

These pressures turn marginal miscalculations into serious crises.

Insights & Best Practices from Financial Experts on Responsible Debt Management

To address these challenges, financial professionals, economists and consumer advocates commonly emphasise a few guiding principles. Below are distilled insights and practices drawn from these sources:

“Begin with Cash Flow First — Income minus Essentials = Net Disposable”

Many experts recommend that debt decisions should start from a clear mapping of monthly cash flow: what comes in, what must go out, and how much is left. Only then can one assess what debt repayment is realistic.

Prioritise High-Cost Debt - Do You Control Your Money

A typical rule is to target highest-interest, unsecured debt (credit cards, BNPL, payday loans) first, because interest compounds most harshly there. Meanwhile, maintaining minimum payments on lower-rate or secured debt avoids penalties or credit damage.

Snowball vs Avalanche

• Avalanche method: pay off debts with the highest interest rate first for least interest cost overall
• Snowball method: pay off the smallest balances first (psychological wins)
  Which method is “best” may depend on your psychology — consistency is more important than the particular method.

Use Balance Transfers / Consolidation Carefully

Sometimes moving debt to a lower-interest instrument or consolidating several debts into one can help. But be cautious about transfer fees, expiry of promotional rates, or extending terms too far (which increases total interest).

Negotiate or Seek Hardship Help Early

Credit providers in Australia are regulated to offer hardship arrangements or flexible payment options under certain circumstances. Experts advise seeking these early — before defaults or legal action.

Build an Emergency Buffer (3–6 Months’ Expenses or More)

Before aggressively paying down debt, many planners recommend building some buffer (e.g. 3–6 months of essential living costs), to avoid reborrowing when an unexpected event strikes.

Automate & “Pay Yourself First”

Set up automatic transfers each pay cycle to savings or debt repayment accounts. This prevents procrastination and reduces reliance on willpower.

Monitor, Reassess, Adjust

A static plan may fail. Financial circumstances evolve — job changes, interest rate shifts, family obligations — so periodic review is essential.

Seek Professional Advice When Complexity Grows

If debt becomes unmanageable, or if there are multiple creditors, legal issues or business exposures, a professional (e.g. financial counsellor, insolvency specialist, certified financial planner) can provide tailored solutions and negotiations.

In some academic research, rules like the “one-third rule” (allocating one third of income to debt repayment, one third to savings, one third to living expenses) have been mathematically validated under certain assumptions as a stabilising strategy for avoiding bankruptcy. (arXiv)

How to Use This in Practice: A Roadmap

Here’s a suggested sequence for someone who recognises they are at risk (or simply wants to lock in better financial health):

1. Take Inventory
    • List all income sources
    • Catalogue all expenses (fixed, variable)
    • List all assets and liabilities (debts, interest rates, payment schedules)
    • Note credit standings and obligations
2. Construct a Baseline Cash Flow Plan
    • Determine “surplus” after essentials
    • Allocate that surplus toward debt repayment, emergency reserve, and short-term goals
3. Rank and Strategize Debt Repayment
    • Identify highest-cost debts vs. lowest balances
    • Consider debt consolidation or balance transfers if beneficial
    • Negotiate hardship arrangements early
4. Implement Safeguards
    • Build or maintain emergency buffer
    • Automate payments and contributions
    • Use budgets, tracking tools or apps
    • Set periodic “financial checkups”
5. Test and Adjust
    • Revisit plan quarterly or when life events occur
    • Redirect windfalls (tax refunds, bonuses) toward debt or buffer
    • Avoid opening new unsecured debt unless within your plan
6. Seek Professional Help
    • If you face multiple creditors, defaults, legal threats or mental stress, engage a qualified financial counsellor or insolvency consultant
    • A professional can assist with restructuring, negotiation, or (as last resort) formal insolvency options

Why Now Is the Time to Act

The rising tide of insolvencies and high debt levels is not a distant storm — it is happening now. The facts are stark:

• Personal insolvency is increasing at double-digit rates year-on-year.
• Many insolvency cases involve “modest” debts, not extravagant risks.
• Credit card debt burden continues to grow, especially in the interest-bearing portion.
• Interest rate sensitivity means households are exposed to policy shifts and inflation.
• Those without planning are more likely to fall behind, triggering wage garnishments, legal action, asset seizure or bankruptcy — all of which severely damage long-term financial health and access to credit.

Put simply: debt left unmanaged becomes a controlling force. If your financial life is driven by minimum payments, surprise interest, or reactive negotiations, you are no longer in charge — your debt is.

By contrast, taking control early through planning, prioritisation and discipline gives you freedom, resilience and optionality. Even small improvements compound meaningfully over time.

Call to Action: Take Control & Seek Expertise

If you’re reading this and feeling uneasy about where your finances are headed, don’t wait. The first step is often the hardest, but also the most powerful.

• Commit time (even just a few hours) to map your full financial position
• Use the roadmap above to draft a debt reduction plan
• Start small: automate one extra repayment or open a “buffer account”
• Review your progress monthly — consistency beats perfection
• If your situation feels overwhelming, reach out for professional help

In Australia, free or low-cost financial counselling is available through services such as the National Debt Helpline (https://www.ndh.org.au/) or other community legal aid / financial counselling organisations. Certified Financial Planners (CFP®) or licensed financial advisers can offer more tailored strategies, especially when investment, tax or business factors are involved.

Let your financial plan become your map — not your debt the driver.

References

• Australian Financial Security Authority (2024, 2025). State of Personal Insolvency Report; Monthly Insolvency Statistics. afsa.gov.au
• Australian Securities and Investments Commission (ASIC). Insolvency Statistics; Credit Card Debt Report. asic.gov.au
• Reserve Bank of Australia (2025). Household Cash-flow Channel of Monetary Policy; Household Sector Chart Pack. rba.gov.au
• Australian Bureau of Statistics (2022). Household Debt and Income Statistics. abs.gov.au
• Trading Economics (2025). Australia Household Debt to GDP. tradingeconomics.com
• The Guardian (2025). Australians Rack Up Record Credit Card Spending. theguardian.com
• News.com.au (2025). Australians Pay Down $274m in Credit Card Debt. news.com.au