Becoming overwhelmed by debt can happen to anyone. Whether you must make unexpected and expensive repairs, help a relative, or struggle with making wise choices on your credit card, debt can build at an astonishingly quick rate.
While this is a situation no one wants to experience, you can be sure you are not alone. Recent studies show that personal debt is about $86,000 per household. Given the average available income is $42,500, many Australians owe debts of 203% of their wages.
Ways to Deal with Your Debt
1. Debt Consolidation Loan
What is a Debt Consolidation Loan?
A debt consolidation loan involves adding your debts, such as credit cards, personal loans, and other debts, and taking out a single personal loan to pay your creditors. After all your debts are paid, you are left with a single obligation to the financial institution holding your loan.
Benefits of Debt Consolidation
You have one payment to make
You will likely get a better interest rate than the different rates you have on other cards
You can choose the term of your loan, so you have an end in sight
The Process of a Debt Consolidation Loan
Calculate Your Debt – When you add up your debt, be sure to look for any surprise fees or penalties that may come with an early payoff
Choose the Type of Loan – You typically have the choice between a secured loan and an unsecured loan
A secured loan requires you to use an asset you already own as collateral for your loan. Secured loans have the benefit of lower interest rates
Unsecured personal loans do not require an asset to “secure” them. Unsecured loans have the disadvantage of slightly higher interest rates and lower loan amounts.
Complete The Application and Pay Off Your Debts – You will need to find out if your financial institution will submit payments to your creditors or if you must send the payments.
2. Assistance from a Financial Counsellor
How Does Financial Counselling Work?
Australians who are struggling with debt can get free or low-cost help by reaching out to the National Debt Helpline online or by phone at 1800 007 007.
You can speak with an experienced financial counsellor who can help you manage your debt. The community-based service is free and confidential, and anyone can use the service regardless of income.
Benefits of Financial Counselling
You will work with experienced professionals who do not charge for their services
Your financial counsellor can help you with several services, including negotiating with your creditors, outlining your options, and putting plans in place to get your financial situation under control
Provide you with information you can use regarding your rights under the law
Access to money planning experts- When you work with a money planning expert, you will sort out all of your finances. Initially, you need to find out the absolute minimum that you must earn each month to meet all of your necessary expenses. This includes:
Mortgage or Rent
Utilities and Phone
Car and Other Loans
Credit Cards and Other Debts
Once you have paid all of the necessary expenses, make a plan to save for the future. After your savings, the remaining money can go towards things you want but do not necessarily need. Even a small amount of money saved will be helpful down the line.
If you make less than the amount you need, consider ways to cut spending or earn more money. Your money planner or financial counsellor can help with this. By completing this exercise, you have created a budget.
The Process of Financial Counselling
Identify and prioritise your debts based on the following
Who do You Owe Money to
How Much Money You Owe
Your Due Date for Repayment
The Minimum Monthly Repayment, if Any
What Your Interest Rates are for Each Debt
Sort all of your living expenses and be realistic about where you spend your money
After figuring out your debts and expenses, decide what you can live without
Work with your financial counsellor to create a plan that will improve your financial situation
Permit the financial counsellor to reach out to your creditors. They may be able to help you with lower rates, negotiate your repayment terms, and connect you with other resources. Many companies have hardship teams that can help customers through difficult financial situations.
3. Debt Management Service
The key to financially freeing yourself is to face your debt issues head-on and build a strategy to pay down the amount you owe. Many people find working with an advisor who can help with debt management services is an excellent way to get in control of their finances and eliminate debt.
What is a Debt Management Service?
Debt management services are one way to take control of your finances and make a way out of the endless cycle of debt. When you engage in debt management services, you gain a mediator to bridge the gap between yourself and your creditors. A third party often helps debtors and creditors understand each other and will assist in clearing up misunderstandings.
Debt management services create a structured plan to eliminate debt while ensuring creditors receive payments. While it does not eliminate your debt, it creates a win-win situation for you and your creditors.
Benefits of Debt Management Services
You have a structured plan to follow
You often pay less in interest
Creditors will no longer bother you
The Process of Debt Management Services
Gathering the Facts – Generally, this involves discussing your circumstances to decide if a debt management service is the best choice. If we agree to proceed, you will fill out a questionnaire and give your written permission to speak with your creditors on your behalf.
Analyse Information – After collecting the needed facts, we will analyse the information and determine the best course of action.
Your Options – We will hold a formal discussion where we will show you:
The obligations you have to creditors
Available ways to resolve the issues
An explanation of our fee calculation
Other options for you that are low-cost or free
Should you decide to hire us, we will move on to the fourth phase.
Implementing the Plan – Our team will begin the process and keep you informed as we go.
In the long run, debt management services are preferable to declaring bankruptcy, as the service will not damage your credit the way bankruptcy will.
Often, our clients believe the only way out of financial hardship is to declare bankruptcy. Choosing bankruptcy should be an absolute last resort because of its impact on your life.
You will have a registered trustee managing your bankruptcy
Bankruptcy does not release you from all of your debts. Most unsecured debts are removed, but you may need to make other payments
Bankruptcy can impact your income. If you earn more than a certain amount, you can be forced to make payments to your trustee
Your trustee has the authority to sell some of your assets, including vehicles, real estate, money in a bank account, prize money, and tools up to a specific value.
You must get permission from your trustee to travel overseas
Your name will be recorded on the National Personal Insolvency Index and remain there permanently.
Bankruptcy will make future credit difficult to get
Even if you are in a difficult financial position, help is available through several avenues besides bankruptcy. If you would like to explore your options, please reach out to us at Freedom Wealth Services. Our experts can guide you to a place of financial freedom.
*General Advice Warning – “Any financial product advice is provided by Freedom Wealth Services Pty Ltd AFSL 502934 The advice provided is general and is not personal financial product advice. The advice provided has been prepared without taking into account your objectives, financial situation or needs and because of this you should, before acting on it, consider the appropriateness of it regarding your objectives, financial situation and needs. You should carefully read and consider any Product Disclosure Statement (PDS) that is relevant to any financial product that has been discussed before making any decision about whether to acquire the financial product.”