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A guide to conquering overwhelming debt

Erasing debt

With any issue we face in life, debt is one that can spiral out of control very quickly unless dealt with head-on. When in debt, people tend to feel isolated and some of us struggle to come up with a solution, or where to turn for advice. Even when you feel like you’re suffocating from what feels like a bottomless pit of debt, there are always ways to deal with and manage debt wisely. Should you be facing serious debt, below are four viable options to consider.

Reevaluate your budget

If you have multiple debt repayments all due towards the end or beginning of the month, don’t panic, you can take the pressure off by making some simple lifestyle adjustments before seeking the advice of a professional. Start by taking a series look at your income and how it’s dispersed across your general expenditure. You can make quick savings by cutting out unnecessary purchases and spending less in the supermarket on treats that hold no nutritional value. For more set expenses where there is less wriggle room like a student loan, you have the option of exploring alternative payment plans and consolidation options. For debt obligations, explore the possibility of a rate adjustment or look into loan refinancing. You’ll need to carry out independent research on these options prior.

Another option is to look at additional or alternative income streams. If you feel your performance at work is worthy of a pay rise, now may be the time to ask the question. After all, if you don’t ask you don’t get. You could also consider looking online for other ways to make money in your spare time. For example, you could open up a shop on eBay (it’s free) if you have unwanted objects you no longer have a use for. Simply take pictures of the items and let the bidding begin.

If you feel reviewing your budget without the aid of a professional is still too much of a mammoth task and over your head, it might be the right time to consult a credit counselling professional. Credit Counsellors Australia offers a free debt assessment and cover all matters of debt help and advice.

Credit counselling

Credit counselling can be a positive alternative to a debt management company. There are quite a few non-profit credit counselling services to help you devise a plan, provide financial guidance, or offer free educational workshops or seminars. The Financial Counselling Australia (FCA) is the peak body for financial counsellors in Australia. This organisation has a nationwide list of credit counselling agencies that are a good starting point, but beyond that, many of the agencies they represent offer a far broader range of services to help assist you towards a path of financial enlightenment.

While doing your research, just be a little cautious when looking for one. Although these organisations are legitimate with certified counsellors, while they are registered non-profit companies, there may still be fees attached to their services. If you’ve been down the route of credit counselling without success, you may want to consider the following options of debt settlement or filing for bankruptcy.

Debt settlement

A debt settlement company will negotiate or settle your debt with creditors and as a result, you pay a settlement amount or a lump sum less than what you owe. You will have to put a set amount of money into an account every month, which will go towards your settlement. Whilst there is the possibility of not having to pay back the full amount owed, it can pose some risks.

Debt settlement companies don’t collect a fee until they renegotiate or settle on the new terms of your debt, which can result in them still being expensive. There’s also the chance they won’t be able to broker a deal with your creditor, because some creditors may not be set up to work with a debt settlement type model. You need to weigh up the possible risks because these programs often ask you to stop making payments, which can lead to late fees, putting you in more debt than you’re already in. You should also talk directly to your creditor, to whom you owe your original debt to, as they may already have a preferred referral partner or a debt settlement practice internally themselves for you to speak with.

Bankruptcy

Looked upon as the last resort when it comes to debt issues. Filing for bankruptcy is a serious decision and leaves a negative impact on your credit file. It’s also highly likely to prevent you from obtaining credit in the near future. When officially declaring and filing for bankruptcy in Australia, a trustee will be assigned to manage your outstanding debts with the creditors to achieve the most sensible outcome for all involved. You can nominate a registered trustee for your choice, or be appointed one though AFSA. Other implications include thresholds on future earnings, so you may need to make compulsory payments to your trustee, not to mention restrictions on your employment and running a business. It can take around seven to ten years from the filing date for the bankruptcy record to drop off your report.

In summary

Remember it’s never too late to turn for help when its debt. Regardless of the stage of the debt cycle, ignoring the problem won’t make it go away. There are a lot more options for dealing with your debt than you probably think – the ones here are just a few of the more obvious. Be sure to research all of your options thoroughly before making a decision. Being in debt is just a temporary glitch in life and it is possible to recover over time. Also be safe in the knowledge that you are not alone, millions of Australians are in the same boat.