What are my debt options?
Depending on your circumstances and goals, your debt solution options can vary quite a lot. In general terms, and in ascending order of seriousness, here are the most common possibilities:
Budgeting –
It may sound boring, but if you haven’t sat down to see exactly what money you have coming in and going out, then your debt solution may be staring you in the face. You can do it the old-school way with a physical budget planner or get tech-savvy and see the wide range of apps available to take the hard work out of it for you. Some of the best are Pocketbook, MoneyBrilliant or a simpler but effective one is TrackMySpend by ASIC
Consolidation –
Loan or debt consolidation – where you take out a new loan that is large enough to pay out all existing debts, leaving you with one single manageable loan. The advantage is cashflow as you only have to manage one repayment, as well as one interest rate. The down side is you have to meet the lender’s criteria which will assess your credit background, amount you want to borrow, repayment history, etc. If you are not eligible then you are still in the same position of juggling debts. Note: all applications for finance are recorded on your credit file. Multiple or excessive enquiries can affect your credit score.
Hardship –
This is when you approach your current Creditors to ask for temporary relief due to experiencing financial hardship. Hardship, if granted, can provide a period of temporary relief (normally 3 months) in order to assess your debt solution options. During the hardship period you may be required to still make reduced repayments so it is important that you understand exactly what the terms of your hardship arrangement are. To request hardship relief, call your bank or lender and ask for the “hardship team”. Each lender will have their own criteria as to what constitutes hardship however typical examples might be unemployment/redundancy, hospitalisation/severe illness, death in the family, etc. Note: hardship is normally only accessible once in every 12 month period, per account. An application for hardship will be noted on your record with that lender and may prevent further lending with them for 6 – 12months. Once the hardship period has been exhausted (or declined in the first place) you will need to resume normal repayments (and possibly catch up arrears). If this is not possible, then you will need to consider other options to avoid legal and recovery action.
Financial Counselling –
Is normally a free service provided by local councils or not-for-profit organisations such as Anglicare, The Red Cross, Salvation Army, etc. Financial Counsellors are trained specialists who know your rights and responsibilities for dealing with unmanageable debt. They can provide information on Centrelink benefits, processes, how to access short term assistance, discuss payment arrangements with creditors or collection agents, draw up a budget and give advice. It is a heavily sought after service, so it is a good idea to make an appointment as early as possible or try more than one office. https://www.financialcounsellingaustralia.org.au/Corporate/Find-a-Counsellor
Informal Agreement –
An informal agreement can be setup by yourself or a debt management company; as the name suggests it is an informal agreement, meaning it is not legally binding on either you or your creditors. You can have multiple informal agreements (eg a different one with each creditor) or a combined informal agreement where the debt management company would seek to get all creditors to participate in the same payment arrangement on the same terms. Depending on the amount of debt and number of creditors involved, this can be tricky to achieve. Your credit may already be affected by this stage, however, an informal agreement can have conditions to halt any further action if you stick the arrangement.
Debt Agreement (Part IX) –
This is a legally binding contract which can freeze the interest and combine all unsecured debt into one manageable repayment via a negotiation with your Creditors. Your credit is affected as there is a listing which is placed on your credit file and remains there for 5 years. In most cases, those needing to consider this option already have impaired credit so this is not an issue, however important to be aware of. Another advantage is that you are protected from any further legal or recovery action in repsect of these debts – a real stress relief!! There are eligibility criteria, however the team at Life After Debt® can provide a free assessment and guidance on whether you qualify and if this is appropriate for you.
Bankruptcy –
Sometimes, as much as we try to avoid it, Bankruptcy is the only remaining option. Bankruptcy should not be viewed as failure, more so a sanctuary from the stress of unmanageable debt and the associated legal and recovery actions. If you simply are unable to pay your debts, then this may be the option you need to consider. The Government has abolished the fee for applying for a Voluntary Bankruptcy Petition so if you complete the papers yourself, or perhaps with a Financial Counsellor, then the application process will not cost you anything. Bankruptcy will be listed on your credit file and affect your ability to get credit. You can get more information, and the application pack of forms direct from AFSA; https://www.afsa.gov.au/insolvency/i-cant-pay-my-debts
Need help?
If unmanageable debt is a problem for you, Life After Debt® can provide a free, no obligation assessment of your circumstances and available options – www.lifeafterdebt.com.au