Being in debt can be a lonely and frustrating journey. The truth, though, is that you are not the only one owing money. In Australia, the average person owes a debt of $60,000 as at 2019.

Again, data shows that while everyone can borrow, most of the households in debt are wealthy. In fact, Michele Levine of Roy Morgan thinks there may be a correlation between wealth and debt. It’s just that without regulation, debt can get you in serious financial pressure and difficulty.

Levine, in her report, did note that investor borrowers handled debt better than regular borrowers. Over time, an individual or household can take so much loan that they’re wondering how to get out of debt.

If it’s any consolation, the fact that you could borrow in the first place means that you have the capacity to handle the loan. Therefore, getting out of debt shouldn’t be a huge hassle. It begins with learning about the alternatives you have and ways you can manage your debt. To help get out of debt with a personal loan take a look at our homepage.

What are the ways you can manage your debt?

When you know your options for coming out of debt, act fast. Time can make a big difference in the outcomes you have. For example, the problem with repaying a debt late is often that you didn’t carry your creditor along in your challenges. And not really that you paid back late.

easy steps How to Get Out of Debt

So, here are some ways you can manage debt in Australia if it’s becoming a problem:

  • Create a budget
  • Talk to your creditor
  • Verify your credit report
  • Get financial counseling
  • Reach out to National Debt Helpline
  • Get legal counsel
  • Consider debt consolidation
  • Lodge a dispute
  • Bankruptcy

Create a Budget

With a budget, you can manage money conveniently. A budget helps you to break down your financial plan for a period. First, state the amount of money you have at your disposal within a particular period and the needs you must meet with it. Then find out what is left and how you can apportion the leftover.

When you are able to clearly see what is left, it becomes easy for you to decide how you can use it to offset your bill.

When you have a budget, you can manage unexpected expenses. You can also manage unnecessary spending.

A budgeting app will help you plan your spendings efficiently. An app like Money Dashboard will help you plan your spendings and savings at once.

Talk to Your Creditor

It may be difficult for you to walk up to your creditor and relate your financial issues. But, this singular action can save you a lot of stress; you can work out a convenient repayment plan.

Most creditors are willing to hear you out if and when you run into issues that make it difficult for you to meet a repayment date. They can offer you options to ease the stress.

Some of the options your creditor may offer include:

  • New repayment model
  • Extended time for repayment
  • Suspended penalty charges

The real issue comes up when you miss deadlines without notice and make no moves to remedy the situation. Your creditor may feel compelled to take actions that can further hurt your credit report.

Verify your credit report

If you have reasons to doubt the repayment bill your creditor has sent to you or feel that you are paying more than you should, it’s okay to check your credit report. Your credit report has information about the credit products that you buy, your history of repayment, financial defaults, credit applications, etc.

With the report, you can verify what you’ve been able to pay so far and clarify any other issue that seems complicated to you. It will also show you how eligible you are to pick a loan in your current situation.

Get financial counseling

Don’t let debts steal your joy and freedom. Being in debt can make you feel isolated when the figures keep rising. But speaking to a financial counsellor can help you out. A counsellor will show you a pathway through your current situation and help you manage the emotional outburst without disclosing your information.

A good place to find qualified financial counsellors to help you for free is on MoneySmart. Their counsellors will help you learn more about the options you have.

Reach out to National Debt Helpline

The National Debt Helpline helps you define ways to prioritize and organize your debts so that you can manage them more efficiently. They can help you to negotiate a payment plan for every kind of debt including utility bills, credit cards, Centrelink debts, and mortgages. You’ll find a step-by-step guide on each of the debt issues and what rights you have when dealing with your creditors.

You can call the helpline on 1800007007 or reach out to them on their website. The service is free and their phone lines are open Monday to Friday at 9.30 am to 4.30 pm.

Get legal counsel

You need legal counsel if your creditor has charged you to court for a debt you owe them. Once you receive a summon, seek legal counsel. You can get free legal help that pertains to your state or territory. You can also check National Help Desk for how to deal with legal issues on debt.

Also ensure that you respond to the summon. The ruling of the court may empower your creditor to take certain actions in order to recover their money from you. Some of these actions include legal proceedings that end up bankrupting you, an order for your employer to pay a certain percentage of your wages to the creditor, and getting warrants that allow them to seize some of your assets.

Consider debt consolidation

It’s often helpful to talk to an independent financial counsellor before you make the decision of debt consolidation. Debt consolidation can be a great way to squeeze all that money you owe into one purse so that your interests and fees become more affordable. It entails taking a new loan and rolling all your existing loans into this new one.

The problem with debt consolidation is that it doesn’t always reduce your bill; interest and fees may run higher than all your debt put together. Also, some creditors will require you to stake an asset to the loan. A good financial counsel will help you weigh your options properly and make an informed decision.

Lodge a dispute

You’re allowed to lodge a complaint or dispute against your credit provider if you’ve tried every way available to get them to consider your financial situation. Usually, creditors will provide why they are unable to accept your request or provide you with any form of consideration. See if you agree with their reason. Otherwise, lodge a complaint with their internal complaint department.

Where you are not satisfied with how their complaint department has handled your dispute, check with the scheme for external dispute resolution. For example, Australian Financial Complaints Authority (AFCA) handles disputes relating to credit, insurance, stockbroking, banking, mortgage, loans and debts collection, etc.

While your complaint is still lodged for resolution, your creditor cannot charge you to court.

Bankruptcy

In extreme situations, you may decide that applying for bankruptcy is the way to pull through overwhelming debt. This legal process will absolve you from most of your debt and allow you to start on fresh grounds.

Bear in mind that the Bankruptcy Act Agreement has a far-reaching effect and will be part of your credit history for 5 years.

You should seek counsel from an independent financial counselor before you take this option. Australian Financial Security Authority offers you guidance on filing for insolvency or bankruptcy.

Effects of not repaying your debt

There are far-reaching effects for not paying your debt. It impacts your credit history and lowers your ability to borrow in future situations. But those are not all. Creditors can take drastic actions that can impact your financial welfare. A little bit of consciousness can help you avert these problems.

Debt Recovery Actions: Creditors will often engage the services of debt collectors to get their money back from you. Debt collectors have regulations guiding their actions, but their duty is to recover what you owe that is long overdue.

Also, creditors can charge you to court and get a court order to take their money directly from your bank account or from your employer. This can make you lose control of how you manage your money until the debt is cleared.

Asset Recovery: For loans that are staked to your asset, missing your repayment deadline can cause the creditor to take steps to reclaim the asset you’ve staked. You’ll usually get a 30-day notice to pay up before they take any action.

Credit Report: When you default with repaying your debt or offsetting your bills for more than 60 days, this information will be recorded in your credit report. This will stay for 5 years before it is wiped, even after you pay off the debt or bill.

In the case that your creditor is unable to reach you for payments that are overdue, the record will be on your report for 7 years.

The effect of these records include having difficulty to access funds in future or to having to take loans at high interest rates.

Frequently Asked Questions

What is a debt management plan?

A debt management plan includes any services whose aim is to help you get out of debt and repay what you owe. These services are often paid when offered by a financial services company. Some of the plans they offer include debt consolidation.

How do I qualify for a debt management plan?

You qualify for a debt management plan if you are in real financial hardship. This includes life situations that cause you to become severely indebted such as an ill health, job loss, bereavement. If you are seriously struggling with repaying your debts, then you should consider a debt management plan.

Will a debt management plan affect my credit rating?

There are two types of debt management plan: a Destroyer agreement and a formal part 9 debt agreement. A part 9 debt agreement is equal to committing an act of bankruptcy and this will be recorded in your credit report for 5 years.

What is a Debtstroyer Agreement?

A debtstroyer agreement is one that allows you to negotiate with a creditor to either cut down on the amount you owe, take out your interest, or eliminate associated fees. This is a legal binding, but it is also a private arrangement with a creditor. A debtstroyer agreement is usually not recorded in your credit report.

How can I get out of debt with bad credit?

With bad credit, part of your options for getting out of debt may include applying for bankruptcy or insolvency. These options have far-reaching effects though. They also involve rigorous legal processes, but when you do get the approval, it will be listed on your credit file for 5 years.