Calculator
Cost-of-Debt Calculator
Cost-of-Debt Calculator
Use 0% for credit cards and auto loans (interest not deductible). Use your marginal rate only for deductible interest (mortgage, qualified business debt).
Weighted APR = (balance₁ × rate₁ + balance₂ × rate₂ + …) ÷ total balance. Example: $10k at 24% + $20k at 6% = (2400 + 1200) ÷ 30000 = 12% blended.
Annual Interest Cost
$2,660
Debt Cost Analysis
Carrying $28,000 at 9.5% APR burns $2,660 a year — the after-tax cost of 7.22% beats any safe investment return, so repaying this debt is the best guaranteed 'investment' available to you. At minimum-payment pace it survives ~3.3 years and costs $4,636.84 in total interest.
*Estimates assume a fixed balance, constant blended rate, and minimum payments of the chosen percentage. Real rates, promotional rates and payment floors vary by lender. Educational only, not financial advice.
What Your Debt Really Costs
Most Australians know their monthly repayment but not the price of their debt — and the difference matters enormously for investing. Household debt remains near record highs relative to income, and every dollar servicing that debt is a dollar not compounding in superannuation or a portfolio. Yet not all debt is created equal: a 6.4% investment property loan whose interest is tax-deductible is a different animal from a 23% credit card with no deduction at all, and treating them the same leads to terrible prioritisation. The concept that professional money managers use is the after-tax cost of debt. If interest is tax-deductible, the tax system effectively pays part of your interest bill, so a 6% deductible loan really costs about 4.1% after a 32% tax shield. Compare that cost against what your money could earn invested — historically 7–9% in diversified equities — and you get a rational rule for whether to repay or invest. This calculator turns a pile of debts into one honest annual price tag, so you can see exactly which debts are emergencies, which are annoyances, and which are arguably the cheapest money you will ever borrow.
From Interest Rate to After-Tax Cost
First, the blended rate: when you hold several debts, the true portfolio rate is each balance multiplied by its rate, summed, and divided by total debt — a balance-weighted average, not a simple average. A $590,000 investment property loan at 6.4% plus $10,000 of cards at 23% blends to about 6.7%, not 14.7%, because the property loan dominates the weighting. The cost engine then runs three lines. Annual interest cost equals total balance times the blended rate. The after-tax cost applies the interest deductibility shield: after-tax rate = rate x (1 - marginal tax rate), which is why the slider should sit at 0% for cards, personal loans and owner-occupier mortgages (not deductible), and at your marginal rate only for investment property or other deductible borrowing. The real cost subtracts inflation (around 2.5–3% on the RBA target band), showing how much of your debt is evaporating in cheaper future dollars. Finally the tool runs a minimum-payment simulation — your chosen percentage of the balance each month — looping interest and principal until zero to produce the payoff horizon and lifetime interest. That number is the cost of passivity: what the debt costs if you never do anything different.
Expert Insights
The After-Tax Rate Decides Everything
Repaying debt is an investment whose return is the after-tax rate you avoid. A 23% card with no deduction is a guaranteed 23% return — nothing in the market matches it, so clear it first. A 6.4% investment property loan at a 37% marginal rate costs only about 4.0% after the tax shield — close to bond yields, and historically below stock returns. That is the entire repay-debt-vs-invest debate, compressed into one number.
Order Your Debts Like an Investment Portfolio
Rank every debt by after-tax rate. Above roughly 7%: attack aggressively, because repayment beats markets. Between 4% and 7%: judgement zone — minimum payments plus investing is defensible. Below 4%: keep the cheap money and invest the difference. This ranking is why avalanche-method payoffs outperform gut feelings, and why prepaying a 3% fix-rate owner-occupier loan while carrying a $5,000 card balance at 23% is mathematically backwards.
Debt Erosion Is a Real Return Too
Inflation quietly pays fixed-rate borrowers. If your loan is 5% and inflation runs 3%, your real interest cost is about 2% — while your income grows in nominal dollars. In high-inflation episodes, long-duration fixed-rate debt becomes one of the best assets a household can hold. This is why refinancing a 3% fixed loan to save 0.5% is rarely worth the break costs, and why paying it off early is a luxury decision, not a financial one.
Actionable Tips
- 1
Compute Your Blended Rate Before Every Decision
List each debt's balance and rate, multiply and sum, divide by the total. Update it quarterly as balances change. The blended number reframes every question — 'should we take this loan?', 'should we refinance?', 'extra repayment or invest?' — into a comparison between two rates instead of an emotional debate. Most people discover their true cost of debt differs from their gut estimate by several points.
- 2
Set the Deductibility Slider Honestly
In Australia, interest is deductible only when the borrowed funds are used to produce assessable income — typically an investment property loan or borrowing to buy income-producing shares. Owner-occupier home loan interest, credit cards, car loans and personal loans are never deductible. If any debt is not used to generate income, run it at 0% deductibility. Overstating the tax shield makes expensive debt look cheaper than it is.
- 3
Attack the Debt Whose Rate Exceeds Your Expected Return
Take your blended rate, or better each debt's individual rate, and compare to what your money could realistically earn: about 4–5% in a high-yield savings or term deposit, 7–9% long run in diversified equities. Any debt costing more than your target investment return is a guaranteed-return opportunity. Redirect one monthly repayment from the cheapest debt's minimum to the most expensive — same total outlay, faster net-worth growth.
Real-World Examples
Priya Stopped Overpaying Her Investment Loan
Priya was prepaying her 6.2% investment property loan with $600 extra monthly, feeling virtuous. Then she ran her blended cost of debt and saw that at her 37% marginal rate the after-tax, after-inflation real cost was under 1%. She redirected the $600 into super and index funds, where the expected long-run return exceeded 7%. 'I was earning 6% guaranteed to avoid earning 8% probably — and giving up the tax deduction,' she said. The cheapest money she had ever borrowed was the last place she should have been sending surplus cash.
Marcus Found His Real Number Was Worse Than He Thought
Marcus believed his debt cost him about 8% — but his blend included three cards at 24–27% that averaged up against his car loan. The weighted calculation showed his card segment alone cost $5,900 a year with zero deductibility. He paused investment contributions above the 15% super floor for eleven months, cleared both cards, and freed that $5,900 annually as a permanent boost to his portfolio. The blended number he imagined had been hiding the emergency in the average.
The Hendersons Refinanced to Invest
With a $550,000 investment property loan at 7.2% and investable cash sitting in a high-yield account earning 5%, the Hendersons faced the classic decision. Their cost-of-debt math showed the after-tax cost at 4.5% once the investment interest deduction was applied, and the market's long-run expected return above 7%. They refinanced to 5.9%, kept the repayments manageable, and invested the difference. The tool did not give them a moral answer — it gave them the rate, which is what the decision was made of.
Glossary of Terms
- Blended Rate
- The balance-weighted average interest rate across all debts: each balance times its rate, summed, divided by total debt. It is the rate that your debt portfolio as a whole actually costs.
- After-Tax Cost of Debt
- The interest rate you effectively pay once tax-deductible interest is considered: rate x (1 - marginal tax rate). For non-deductible debts like credit cards, the after-tax cost equals the full interest rate.
- Real Interest Rate
- The nominal rate minus inflation. It measures the true cost of borrowing after accounting for repaying with cheaper future dollars — the reason fixed-rate debt can become an asset during inflationary periods.
Frequently Asked Questions
Everything you need to know about this topic.
Ivy Sinclair-Wren
Financial Chaos Analyst
Ivy Sinclair-Wren is a Financial Chaos Analyst covering investing, AI, wealth psychology, and the emotional consequences of opening finance apps during market crashes. Based in Melbourne, she specializes in demystifying the Australian tax code and helping users navigate the intersection of spreadsheet logic and human irrationality.