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17 Debt Advice Tips for Australians

Debt problems come in all shapes and sizes from the occasional cash flow crisis to the full on, out of control, debt nightmare that requires professional debt advice.

For Australians experiencing short term debt problems a number of easy steps are open to them.

1 One of the simplest and best debt advice tips is drawing up a budget and sticking to it so that it’s easy to see what money is coming in and what’s heading out.

2 Most consumers’ wallets contain credit and store cards that they have had for some years. As consumers get older their credit score often improves with age, meaning they could be eligible for cheaper credit cards and could save money if they switched lender. It is possible to switch away hundreds of dollars of credit card interest this way.

3 Getting a list of standing orders and direct debits from your bank is a good way of spotting non-essential outgoings that could be put to better use.

4 Interest free loan and buy now pay later deals are often expensive and designed to part consumers from their hard earned cash. It is best to avoid these deals, and only buy what you can pay in cash for.

5 Pay more than the minimum monthly payments on all credit cards, otherwise you will be paying more than you need to in interest payments.

6 If you have a home loan, think about refinancing. If you do your sums carefully you could save money on an introductory cheap rate.

For consumers who are facing more than short term debt problems a number of alternative steps are available.

7 Think about consolidating all credit and store card debt into one loan. Average loan rates are significantly less than those for average credit and store cards. Applying for two smaller loans, rather than one large one, can make it easier to get your loan accepted.

8 Don’t extend any loan for more than 3 or 4 years, doing so can make the total cost of the loan much more expensive, for just small monthly savings.

9 Consumers with consumer credit insurance should consider cancelling it, as it not good value for money. It was highlighted as a ‘junk insurance’ by the Australian Consumer’s Association. CCI adds a considerable amount to the monthly cost of credit, and it won’t give any advantage to a credit application.

10 Consumers with a mortgage could think about re-mortgaging and consolidate their credit or store card debts into their mortgage, at a lower rate of interest.

11 Consumers struggling with their debt need to prioritise their monthly payments, to ensure that the essentials are paid first. Failure to pay the mortgage, secured loan or rent can lead to homelessness, so it’s always important to pay these first. Don’t pay the lender that shouts the loudest first.

12 There are government funded independent financial counsellors in all parts of Australia. They can give consumers free expert debt advice. Consumers who need to deal with their creditors to reduce their payments can get help with an Informal Arrangement through their local free financial counsellor.

13 If a consumer’s debt problems have become a real horror story, there are a number of options to relieve the stress and burden and achieve a fresh start.

14 Bankruptcy is an option for those who cannot see any way of repaying their debts. For $400 it wipes the slate clean. Creditors are no longer able to pursue a customer who has been declared bankrupt, and the consumer will be discharged after three years.

The downside of bankruptcy is that it remains on a consumer’s credit file for seven years. Their assets, which could include their home, will be sold off by a Registered Trustee or the Insolvency and Trustee Service. A contribution is taken from bankrupts who earn over a certain level, currently around $40,000, to pay their creditors.

15 An alternative to formal bankruptcy is a Debt Agreement, targeted at people on low incomes with few assets. This can reduce the amount consumers owe to their creditors by agreeing a compromise deal. Debt Agreements tend to be used by consumers struggling with their credit cards or loan payments, and who earn less than $58,000 after tax. These can be administered by Registered Trustees, ITSA or a third party. Service fees can be around 20%. As long as 75% of creditors agree, a formal Debt Agreement is binding on creditors.

16 A more expensive alternative to a Debt Agreement is a Personal Insolvency Agreement. These are open to more consumers, but can be more expensive because they can only be administered by a Registered Trustee or ITSA. Both Debt Agreements and Personal Insolvency Agreements appear on credit reports for 7 years.

17 For more debt advice information, check out the debt advice published by the Australian Competition and Consumer Commission and the Australian Securities and Investments Commission entitled: “Dealing with debt: Your rights and responsibilities.”

Description: Many more Australians are in need of good debt advice since the onset of the credit crunch. This article contains top tips for people facing a cashflow crisis to those in need of hitting the financial reset button.

Tristan Dunston is an independent public relations consultant specialising in finance and privacy matters. He loves whitewater kayaking and photography
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