P. Patel

Is Debt Relief Right For You?

When your monthly expenses exceed your monthly income, it might be time to consider reducing your debt to ensure you don’t fall behind on any of your payments. There are several ways to reduce your debt, however, some solutions may be more appropriate depending on your specific situation. If you are looking for ways to reduce your debt, we’ve compiled a list of the most effective debt relief strategies. Read on to discover if debt relief is right for you.

Already know that debt relief is right for you?

Free Resources

The first places to look when considering debt relief are local and federal government site where you can find a multitude of free resources to help you on the path to debt reduction.

To speak with a professional financial counselor, you can call the National Debt Hotline at 1-800-007-007 for free and confidential advice. They are open Monday through Friday, from 9:30am to 4:30pm. If they are closed right now, you can also visit the National Debt Helpline website for instructions and tips on how to repair common debt issues like late payments on utility bills, mortgages, credit cards, and personal loans. Another option you might consider is Australia’s Financial Ombudsman service.

According to the FOS website, a Financial Ombudsman can help you if “you and your FSP(Financial Service Provider) might not be able to agree on an arrangement that suits you both. If this happens, then FOS may be able to help.” The first step in using this free service is to lodge a dispute. This will help the Ombudsman to understand your current financial situation and your ability to repay your debts. From here the Ombudsman will work on your behalf to negotiate a repayment plan with your FPS that provide you with the debt relief you need and the FPS with a way to recieve their payments.

Finally, you may want to seek free legal advice concerning your debts from local community legal centres or one of the Legal Aid offices that are in each state and territory.

Refinancing Your Debts

If you’ve already spoken with a financial advisor and know that the next step for you is to refinance some of your current debt, there are several options available to you. The first and most direct option is to speak directly with your lender and ask if they can change your repayment arrangement or extend your loan. It might seem unlikely that a lender would simply adjust the terms of your loan to help you out. However, your lender would much rather receive their payments on a different schedule than not receive them at all and it would likely be far more time-consuming and expensive to hire a debt collection agency to retrieve their payments if you are unwilling or unable to pay. Therefore it is often advised that you first speak with your lender to see if they are willing to work with you to adjust your repayment schedule. Another option to consider is a low or no interest rate credit card.

One of the most popular types of credit card available is a “No Interest” credit card, which has an interest rate of 0%. If you currently have credit card debt and are paying a high-interest rate on this card, a no-interest credit card this might sound like a fantastic option. However, often times these “no-interest” credit cards are only “no-interest” for a limited amount of time and after that period of time, the interest rate will change to something significantly higher. If you are considering a “No-Interest” credit card, make sure you understand exactly how long the interest rate will stay at 0%. While it might seem foolish to sign-up for a card that will eventually have a high-interest rate, it can actually be an excellent choice if you know that you will be able to pay the balance of the card off before the interest rate changes.

If your lender is not interested in working with you to adjust the terms of your debt and a no-interest credit card is not right for your financial situation, you may want to consider debt consolidation.

What Is Debt Consolidation?

Debt consolidation is a financial technique designed to restructure multiple debts into one singular debt. If you are looking for debt relief from multiple sources, consolidation would enable you to transform multiple debts into a single loan with a single interest rate, thereby simplifying the repayment process and, in some cases, decreasing the overall interest rate. However, before applying for a debt consolidation loan you may first want to ensure that the terms of your new loan will not increase your interest rates and put you in a more difficult financial situation. Here are a few things to consider before applying for a debt consolidation loan:

  • Compare interest rates, fees, and charges - The point of debt consolidation is to pay less on your new loan, so start by comparing the interest rate, including fees and other costs, against your original loan. Some lenders may charge penalties if you pay off loans early while others charge hidden application and legal fees, so be sure to read the fine print on this type of loan.
  • Check the terms - Look out for longer loan terms. Even when the interest rate is lower on the new loan, you may still end up paying more if you are making more payments. Be sure to compare not only the interest rates but also the total interest paid over the lifetime of the loan to ensure you are getting a fair deal.
  • Ensure the company is licensed - There are many unlicensed lenders operating illegally on the internet. Here’s a link to a Professional Register where you can check to see if your lender is licensed.

What About Bankruptcy

If you have expended all other options, you may want to consider filing for bankruptcy. According to the Australian Financial Securities Authority, “although bankruptcy can provide relief if you are unable to repay your debts, there are consequences which may affect you. Being aware of these consequences can help you decide if this is the best option for you.” While bankruptcy can free you from the requirement to repay your unsecured debts, there are several restrictions and limitations that will be placed on your finances as well as your ability to travel. You can learn more about declaring bankruptcy by following this link.

Resources

https://www.accc.gov.au/consumers/debt-debt-collection/help-when-youre-in-debt

https://www.moneysmart.gov.au/managing-your-money/managing-debts/consolidating-and-refinancing-debts

http://www.fos.org.au/consumers/financial-difficulty/

https://www.afsa.gov.au/insolvency/i-cant-pay-my-debts/what-are-consequences-bankruptcy