Consolidating your debt

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Rolling your credit card debt into your mortgage... is rarely a good idea, since your house will be on the line if you can't meet the payments.

You can deal with the creditor directly. If you've fallen into debt due to extenuating circumstances such as losing your job, the Uniform Consumer Credit Code (UCCC) gives you the right to ask your creditors to revise the terms of payment through a hardship variation. 

You can also ask to revise the terms if you simply don't have the money to pay what you owe, but the terms of repayment may be more stringent. Through the hardship variation, you may be allowed to extend the duration of your debt and make smaller payments or put the debt on hold until you can start repaying it.

Creditors must consider your case and respond within 21 days. If they knock you back, the FOS or Credit Ombudsman Service can intervene on your behalf (both can be contacted on 1300 780 808). 

Under the law, creditors or collection agencies aren't allowed to mislead those in debt into thinking a new repayment plan is not available, nor are they allowed to harass a debtor in any way, including using disrespectful or abusive language. And in the case of bankruptcy, creditors of unsecured debt such as credit cards have to stop all collection activity.

There's a much higher risk for those who fall behind on secured debts such as mortgages and look for a consolidation solution. Rolling your credit card debt into your mortgage, for instance, is rarely a good idea, since your house will be on the line if you can't meet the payments. 

And refinancing or finding a new loan may mean you'll end up paying much more down the road and may be blindsided by exit and start-up fees as well as valuation and stamp duty. The UCCC also applies to mortgages, so talking to your lender should be your first step. If you refinance, be absolutely sure you'll be paying less.

DIY debt control

ASIC offers sound guidance on how to manage multiple credit card debts, regardless of whether you apply for a hardship variance. Stop using all but one of your credit cards, and only use that for emergencies. Make the minimum payments on all your cards to avoid multiple charges for late or missed payments.

At the same time, pay off as much of the principal as you can, starting with the card with the highest interest rate. 

Then, work your way through the card with the next-highest rate. When each card is cleared, cut it up and close the account or you may still be liable for fees. Then tighten the reins on your remaining card – a $2000 limit, for example.


Credit card debt in Australia

Despite the sobering effects of the GFC, Australia's borrowing binge continues. 

The RBA tally on credit card debt as of February this year was about $50bn, or around $2272 each for every Australian – one of the highest levels of consumer debt on the planet.

Paying credit card interest rates as high as 20% or more (plus fees), it's not hard to fall behind – and many consumers appear to be doing just that. 

Over the past two years there's been a big jump in financial difficulty disputes reported to the Financial Ombudsman Service (FOS). 

Its most recent annual review shows an increase of 130% between 2009-10 and 2010-11, 94% of which had to do with consumer credit.


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