Drowning in debt? Find a solution that’s beneficial for you and your credit history.
Debt is everywhere. Australian household debts are rising and along with personal insolvency declarations, one thing is clear: debt is lurking within most households.
If your debt levels are creeping up, there are a variety of debt solutions you can consider to help you regain control. This guide explains what they are and how to find the right one for you.
How do debt solutions work?
Debt solution companies work with people who have a large amount of debt to help them reclaim their lives and repay the money they owe. They offer to negotiate with creditors on your behalf, coordinate repayment plans and can help you file for bankruptcy if your financial situation necessitates it.
Many debt solution companies offer budgeting assistance or customised debt solutions in order to help you get out of debt fast. This option will help empower you when it comes to restructuring your finances.
What debt solutions are available?
A debt solution is usually offered by a specialist debt company. Some companies offer debt consolidation services, where they offer to repackage all of your debts into one loan.
Debt agreements are also available for people who are unable to pay off their debts but don’t want to declare bankruptcy. All of your debts are consolidated into one loan with this option as well.
Personal insolvency also involves debt consolidation but this option is only available to those with over $90,000 in unsecured debt.
Your last option is bankruptcy. It is often described as a “financial clean slate” but is not a decision to be taken lightly as the regulations around this are complex. However, all of your unsecured debt will be wiped clean with this option.
How are debt solutions different from bank debt consolidation loans?
Debt solutions and bank debt consolidation loans might sound similar but they have one major difference. Debt solutions are designed for large amounts of unsecured debt across a variety of platforms. They should only be taken out as a last resort when unsecured personal loans aren’t an option for you.
With a debt consolidation loan from the bank, you don’t get your interest rate or your repayments frozen and it may be up to you to close your previous credit accounts after consolidating. You will also need to have good credit and look like a good prospective borrower to the bank, which is atypical for most clients carrying multiple debts.
Why would I use a debt consolidation company?
Consider the services of a debt consolidation company for any of these reasons:
- Your debt feels too large to tackle on your own. If you have thousands of dollars of debt, it can feel like a monster is looming over you and you may not have the confidence to deal with it yourself. That’s where a debt consolidation company can work for you.
- Eligibility. If you aren’t eligible for a bank’s debt consolidation loan, it’s time to consider a debt consolidation company.
- You don’t know how to budget. Budgeting is one of the first steps proposed by a debt consolidation company, and many of the companies offer personalised and tailored budgeting options to make this task even easier for their clients.
- Flexibility. Seeking out a reputable company that can tailor their solutions to help you get the best out of your current financial situation can mean flexibility that is unavailable from a standard personal loan.
How do I compare debt solution companies?
Comparing debt solution companies can be a bit confusing at times. However, there are some easy ways to find the one that meets your needs:
- What are their fees? If the company is open about the fees it will charge you, or if it at least has lower rates than those offered by a competitor, then it’s worth considering. However, just because one company has cheaper fees does not mean that it offers the best solution.
- Can they minimise the interest you’re paying? If the company can’t reduce your interest, look elsewhere for your debt solution. Having a lower interest rate might not seem like much, but for the term of your debt solution it can end up saving you big money.
- Can they help you budget? Many debt consolidation companies offer a personalised and tailored budget for you and your financial situation. However, it helps to think about the other factors listed here before making a decision on your debt solution company.
- Can they talk to creditors for you? At this stage, you’re avoiding your phone because you have a pretty good idea of who is calling. Some debt solution companies offer to talk to your creditors on your behalf, which can ease a lot of anxiety.
What are the risks of getting a debt solution?
There are some risks that are associated with getting a debt solution. For example, you may have paid off your short-term debts, but not changed your long-term behaviour. This might lead you down a familiar path because debt consolidation unfortunately does not change your spending habits.
Also, depending on the debt relief option you choose, the solution can impact your credit history. For example, Part 9 Debt Agreements are a form of bankruptcy and are listed as such on your credit file.
You should also be mindful of the total cost of the debt consolidation solution you are considering. Ask about every fee you might be charged so that you get a good understanding of what it may end up costing.
There are a variety of ways for you to get out of debt. However, it’s always a good idea to examine your financial habits first before deciding to see a debt solutions agency.
Picture: Shutterstock
