If you’re struggling with debts, the worst thing you can do is ignore the problem and hope it will go away.
You may be embarrassed, fearful, or even too proud to ask for help and advice. Don’t let your emotions stop you from tackling your debt. Steps you take now to achieve a more stable financial position will make a big difference.
Working to bring your debts back under control will be difficult and demanding, but necessary. Even if you think your situation is hopeless.
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Ways to prioritise your debts
Your approach for tackling your debts will depend on many things including:
- how much you owe; and
- the value of your assets; and
- actual or possible changes to your working hours or income; and
- how long you’ll have limited income; and
- the type of debt you have (credit card, loans, utility bills, for instance); and
- the amount of interest that applies; and
- the importance of each debt relative to your other debts, and
- the legal consequences of not paying a particular debt;
- your age; and
- your willingness to acknowledge your circumstances and work hard to resolve them.
When you have limited income you soon realise the consequences of not paying some debts are more serious than for others. For example, mortgage and rent debts may be your biggest debts and seem a priority over other debts.
The size of the debt and the amount of emotion and need attached to a possession (like the roof over your head or your car to take your kids to school) are certainly factors in helping you decide the relative priority of your debts. But so too are the specific options available for these debts and the legal consequences of not paying, when you have a reduced income.
Under consumer credit law, your creditor is obliged to provide written information about your loan. For more information go to:
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Your debt payment options
Consumer legislation and government support schemes and grants have been established to assist you to manage your debts.
By understanding your debts and your payment options and the legal consequences of not paying, you’ll be able to prioritise which debts you pay first. If you at least pay something towards your outstanding debts, your creditors may delay action against you and give you the opportunity to deal with the debt. The options available to you might include:
If you have multiple debts, you will probably benefit by consulting a financial counsellor to assist you.
You can also seek the help of a range of professional service providers, emergency help organisations or personal support agencies.
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Determine your priority debts
Some debts are more important than others. As you work out how to prioritise your debts you need to make sure that paying certain bills won’t mean you end up defaulting on others that may have serious legal consequences for you.
You will need to explore and understand the options available to decide how you are going to manage your bill and debt payments.
For example, if you are struggling with mortgage repayments and debt generally, you may be eligible to apply for a 12-month postponement for your mortgage repayments under the recently-announced Government Principles relating to mortgage payments for people who have less income due to the economic downturn. Your lender though has no obligation to grant this.
If you get into the situation of being three months behind with your mortgage payments, you may be eligible for a loan under the Mortgage Relief Scheme or to apply to access your superannuation early.
At any stage when you are in debt, you may ask your lender to reduce or defer payments. If they refuse, you may approach either the Financial Ombudsman Service or the Credit Ombudsman for help.
It may therefore make better sense to pay off your high-interest credit card debt with any money you do have so you reduce the interest you pay. A decision to do this may reduce the pressure you’re under, and allow you to give more attention to your more-costly debts.
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Know your rights
It’s important that you know your rights. You have a legal right to ask for a change to your current payment arrangements for many bills and debts (including loans taken for personal, household or domestic purposes, and loans for property investment purposes taken after July 1 2010) when you are experiencing financial hardship.
Creditors cannot have you sent to prison because you cannot afford to pay. If they think you have deliberately refused or neglected to pay when you could have done so, they may not be as willing to negotiate with you for a payment plan when you ask for one.
Many of your creditors are legally obliged to consider your request for special payment arrangements that are affordable when you are in financial hardship. They may agree to alternative formal or informal payment arrangements if you ask for them.
However, your creditor is not obliged to agree to any particular payment plan you request. While they are considering an offer from you for a non-standard payment, you may start paying as if they had already agreed to it. You should also be aware that if your creditor does not agree to a request, you may apply to the relevant ombudsman scheme for the payment plan you seek.
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Your creditors’ rights
Creditors have rights under the law to pursue you for money you owe them. They can take action to recover their money by following a lawful process. They may:
- seize any secured property—including repossessing your home
- evict you from rented premises if they are your landlord
- disconnect your gas or electricity or restrict water flow to your premises if they are your utility provider
- disconnect your phone if they are your service provider, or
- take you to court.
Neither your creditors nor debt collectors working for them (or to whom they have sold your debt) can seize normal household goods unless they are secured by the loan. They may seize other goods, however, such as your car.
Check with a financial counsellor about which items your creditor or debt collector can seize in your circumstances.