4D. Managing debt

Keep a budget that includes your debt payments, income and other expenses. Once your debts are under control, a budget can still help by making sure you don’t spend more than you earn. Consider building an emergency fund into your budget to avoid getting into debt if something unforeseen happens.

For more information on preparing a budget, see Thrive 4A.

MoneySmart and the National Debt Helpline provide debt management help.

Make a list of all the money you owe. Include credit card debts, personal loans, mortgage repayments, utility bills and money owed to family and friends. Where relevant, include the following:

• how much you owe
• minimum monthly payment required for each debt
• interest rate linked to the debt
• what is the debt for (for example, mortgage repayments, credit card bills, personal loan repayments)

Determine which of your obligations you want to pay first with any available money:

• some people pay small bills off first for a sense of achievement and momentum, as to reduce the number of late fees incurred
• others pay off the debts that have the most expensive interest rate, to save the most money
• consider the consequences – if you do not meet your mortgage repayments, you could risk losing your house

Apply any spare money you have to your debts. The extra money might come from:

• a second job or some weekend overtime
• lump sums like a tax return
• selling something that you don’t need or no longer use

You should also review your expenses and reduce non-essential spending to pay more on your loans.

Get in touch with your utility providers, banks or any other company to let them know you are having trouble managing payments. Many companies will have hardship teams you can talk to when you aren’t managing. It’s best to speak to the hardship team earlier rather than later, to try to stop the problem from getting out of control. Specialists in the hardship team can:

• assess your situation
• work out what help is available
• help you make a payment plan that works for you, including paying in instalments and/or changing when your payments fall due

For further information on hardship support, see Rebuild 3D.

When agreeing to a repayment plan, make sure it’s affordable. There is no point in agreeing to something you won’t be able to keep up. There are a lot of organisations that offer a solution to your debt problems – it may be referred to as debt consolidation. However, you need to be careful as the cost of these solutions can sometimes add to your existing debt. Way Forward is a non-profit organisation that can help with debt consolidation. It is a good idea to speak to a financial counsellor or ring the National Debt Helpline on 1800 007 007 before signing up for debt consolidation.

For more information about your options, see MoneySmart.

If you own your home and are struggling with your mortgage payments, there are options available, including:

• short-term, temporary pauses or reduction in repayments – this is called a hardship variation
• in the longer term, you may be able to find a mortgage with cheaper fees or better rates but be careful about hidden costs
• note: if you’re already behind in your repayments, you can’t usually change to a different loan type or interest rate with your bank
• in some circumstances, you can access your superannuation to help pay your mortgage – this should only be considered as a last resort

Bankruptcy is very serious and has consequences both short and long term. Bankruptcy allows you to waive many types of debt, but it means you will be on an insolvency register for life. This affects your credit file, some future jobs, and international travel. It should always be considered a last resort. If you are considering bankruptcy, speak to the National Debt Helpline or a financial counsellor first.

Sorting out debt can be difficult on your own. Discuss your situation with a trusted friend or family member you consider to be “good with money” or get in touch with an independent financial counsellor. Financial Counsellors work for charitable organisations across Australia and offer free, confidential and independent advice to people experiencing financial hardship. Most importantly, financial counsellors are there to work with you and won’t judge you for your situation.

More information on financial counselling is available on the MoneySmart website, see Financial Counsellor’s Association WA or Financial Counselling Network for information and services specific to Western Australia.

Consumer Credit Legal Service
(08) 9221 7066
9am – 4pm
Provides legal advice and assistance to people with issues about their credit and debt, including hardship variations.

National Debt Helpline
1800 007 007, or live chat online.
Monday to Friday, 9.30 am – 4.30 pm.
Free financial counselling

Financial Wellbeing Collective Emergency Relief and Food Access Service
1800 979 777 or complete the online enquiry form.
Monday to Friday, 9.30 am – 5pm, excluding public holidays
This service provides referrals for people in need of financial assistance or help putting food on the table.

Good Shepherd Financial Independence Hub
1300 050 150
Monday to Friday, 9am – 5pm AEST
Discuss finances, or what to do if you have found out about debt in your name during a personalised and confidential one-on-one service.