It's important to contact your lender immediately if you’re having difficulty meeting your repayments. All lenders should assist if you are in financial hardship. The Big Four banks recently announced they would consider a repayment holiday for up to 12 months for borrowers who lose their job. Other options are to reduce payments by paying the interest only for a while or perhaps increase the term of your loan.
If you’re paying off a credit card with a high interest rate, ask your lender to switch you to a card with a lower interest rate or refinance your credit card debt into a personal loan. Then cut up the card and use a debit card instead.
Financial counselling services
It’s harder to find a solution if you’ve already fallen behind, but it’s never too late to seek help. Financial counselling services provide a free, confidential and independent service to assess your situation and help with solutions; see Debt Relief Contacts. They can assist with pleading hardship on your behalf and/or negotiating an agreement with your lender, but they advise consumers to make the initial approach if they feel comfortable doing that.
“We want to encourage people to do things themselves and learn new skills – it’s about empowerment,” says Anna Mandoki, a financial counsellor with Melbourne’s Inner South Community Health Service.
Where to get help
If you’re having trouble making ends meet or you’re in financial hardship, check out these services.
Relief for energy bills
If you’re having difficulty paying your bill, contact your retailer, who can usually offer flexible repayments. You may also be eligible for government assistance. For more information and contacts, visit www.choiceswitch.com.au contact your local fair trading/consumer affairs office.
You can apply to the Australian Taxation Office to delay payment of your tax debt or even relief from part or all of your tax debt if you are in serious hardship; see www.ato.gov.au or call 13 11 42.
The Good Shepherd Youth and Family Service, together with National Australia Bank, have developed a low-interest personal loan product called StepUP Loan, which is available if you have a health care card or receive Family Tax Benefit Part A. Loans are usually between $800 and $3000 and used to purchase household furniture, computers and second-hand motor vehicles. The interest rate is 3.99%, fixed for the term of the loan, repayments are flexible and there are no fees or charges. See www.goodshepvic.org.au/microfinance.
No-interest loan scheme
There are 280 community-based organisations across Australia offering interest-free loans (not to be confused with store finance) to people on a health care or pension card who are genuinely low-income earners. Each community group has its own criteria, but loans are typically between $800 and $1200 for essential household goods and medical equipment and are repaid over 12 to 18 months. See www.goodshepvic.org.au/microfinance.
Early release of super
In very specific circumstances, such as when you’re about to lose your house, you can get access to some or all of your superannuation money – see www.apra.gov.au. Releasing your super only makes sense if you’re in short-term difficulty; one trap of doing this is potentially losing your house and your superannuation for good.
Case study: Living expenses exceed income
Mary and Henry (not their real names) found themselves in a situation that typifies the debt cycle. In their 30s and with two children, Henry lost part of his income when his employer cut back on costs, while at the same time Mary’s business failed. They owed $42,000 on credit cards and personal loans to seven different lenders.
Melbourne-based financial counsellor, Anna Mandoki, helped the couple prepare a realistic budget which revealed that their living expenses, even before debt repayments, exceeded their income, showing the family had been living beyond their means and was propped up by credit cards.
The first step was to align their expenses with their income. Anna then helped the couple address their debts; Mary opted for bankruptcy, while Henry was able to negotiate hardship arrangements on his debts. This meant Henry’s credit history was unaffected, so now they’re able to continue working towards their goal of purchasing their own home.