Australians are more focused than ever on managing their financial health, and understanding ‘underlying debt’ is crucial for both individuals and businesses in 2025. With new policy changes and a shifting economic landscape, knowing what lies beneath your balance sheet could make or break your financial plans this year.
What Is Underlying Debt?
Underlying debt refers to the total financial obligations that sit beneath the surface of apparent liabilities. It includes debts that may not be immediately obvious on a company’s or individual’s financial statement, such as off-balance sheet loans, contingent liabilities, or debts within subsidiaries. For everyday Australians, it can also mean personal loans, buy now pay later arrangements, and credit card balances that aren’t always captured in a single loan summary.
In a business context, underlying debt is particularly significant for companies with complex structures or those engaging in mergers and acquisitions. For individuals, the rise of alternative credit products means underlying debt can accumulate quietly, affecting borrowing power and long-term wealth.
Why Underlying Debt Matters in 2025
2025 is shaping up to be a pivotal year for debt management in Australia. Several new financial policies and economic factors are making underlying debt more visible and more critical:
- Stricter Lending Criteria: In January 2025, APRA introduced tighter lending standards for banks, requiring them to account for more forms of underlying debt when assessing loan applications. This means your BNPL, credit cards, and even some recurring subscriptions could influence your ability to secure a mortgage or personal loan.
- Rising Interest Rates: The Reserve Bank of Australia has maintained a higher cash rate throughout 2024 and into 2025. As a result, the cost of servicing all types of debt—visible and underlying—has increased, putting pressure on household budgets.
- Transparency Laws: New ASIC regulations now require businesses to disclose more about their off-balance sheet and contingent liabilities in financial reports, making it easier for investors and lenders to assess true risk.
With these changes, Australians need to pay closer attention to every form of debt they carry—not just the obvious ones.
Examples of Underlying Debt in Real Life
Let’s look at how underlying debt shows up in day-to-day life and business:
- Personal Finance: Emma, a Sydney-based graphic designer, has a car loan and a HECS-HELP debt. She also uses Afterpay for online shopping and has an outstanding balance on her credit card. When applying for a home loan in 2025, her bank factors in all these debts—even those with low monthly repayments or interest-free periods—when determining her borrowing capacity.
- Business Scenario: A Melbourne tech startup secures venture capital funding. However, it also has a lease liability for its office (counted as a right-of-use asset under AASB 16), supplier financing, and a parent company guarantee on a previous loan. Investors in 2025 are now demanding full disclosure of these underlying debts before injecting capital, due to recent high-profile collapses linked to undisclosed liabilities.
- Property Investment: A couple owns an investment property via a family trust. The trust itself has taken out a loan, while the couple holds personal liabilities. In 2025, lenders ask for a consolidated view of all associated debts—including those held by the trust—to ensure comprehensive risk assessment.
How to Manage Underlying Debt Effectively
As policies evolve, so too must our financial habits. Here’s how Australians can get on top of underlying debt in 2025:
- Conduct a Debt Audit: List every financial obligation, including BNPL, credit cards, overdrafts, HECS/HELP, and business-related liabilities. Don’t forget off-balance sheet items or joint debts.
- Monitor Policy Changes: Stay informed about APRA, ASIC, and ATO updates, as these bodies continue to tighten and clarify debt reporting requirements.
- Seek Consolidation Opportunities: With higher interest rates, consolidating multiple debts into a single lower-rate loan can help reduce total repayments and simplify budgeting.
- Improve Documentation: For business owners, ensure all liabilities—no matter how hidden—are transparently documented for lenders and investors.
The Bottom Line: Transparency Is Power
Understanding and managing underlying debt is more important than ever in 2025. With tighter lending rules, rising rates, and new transparency standards, Australians who take a proactive approach to uncovering all their debts will be better positioned for financial security and opportunity.
