Debt relief

If you lose your job, how will you pay your bills? CHOICE outlines your options.
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debt relief - cut up your credit card

In brief

  • Financial counsellors offer a free and independent service to help you assess your options if you’re having trouble managing debt.
  • CHOICE’s shadow shop found debt relief companies mainly recommend debt agreements – an expensive option that will damage your credit history.

It’s looking gloomy out there, with unemployment rates increasing and many Australians facing redundancy this year. At the same time, household debts are higher than ever: we now owe close to $160 for every $100 of after-tax income – double what we owed 10 years ago (see graph, below)

Debt relief companies are reporting extreme cases of consumers carrying up to $400,000 in credit card debt on 50 separate credit cards. Overall, about 75% of cards are not fully paid off each month and are accruing interest, many at a rate between 18% and 19%, with an average unpaid balance of $2300.

The good news, however, is that Australians are reducing their reliance on debt in preparation for the tough times ahead, with a clear trend towards saving instead of spending. Several options are available to help you get your debt back under control.

Please note: this information was current as of April 2009 but is still a useful guide to today's market.

First steps to reducing your debt

  • Make a budget Consider options to reduce your living expenses, such as selling the second car, as well as ways to increase your income, such as asking any adult children who still live with you to contribute to household expenses.
  • Research ways to cut back on expenses; talk to family and friends and for useful websites, see Debt Relief Contacts.
  • Get ahead Once you’ve freed up some cash, make extra repayments, which can slash thousands of dollars in interest off your mortgage and credit card(s).

CHOICE verdict

Despite hard economic times, there are steps you can take now to reduce your personal debt. First, take stock and then start working on reducing your debt, especially if you’re concerned about your job security.

If you’re already in trouble or your employment situation changes, it’s important to react fast – contact your lenders and see a financial counsellor. Don’t wait until you have fallen behind, as you’ll have fewer options. Never use a credit card to pay off another credit card or your mortgage; it will only get you deeper into trouble. Apply for relief if you’re suffering any hardship such as unemployment, family breakdown or sickness.

Debt agreements are no silver bullet; they’re expensive and will damage your credit history. Think carefully and exhaust all other options before taking such a drastic step.

Household debt graph



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