July 14, 2021

Debt Advice: What do I need to know?

Debt Advice: What do I need to know?

There are hundreds of debt advice companies in Australia, offering a myriad of debt solutions ranging from credit repair to bankruptcy! However, it pays to do your due diligence if you are unfortunate enough to find yourself in trouble with debt, as you may be susceptible to misunderstanding the true ramifications of a given debt solution, especially where pushy sales tactics and fine print are concerned. Here’s a comprehensive list of the main debt solutions available to Aussies, and the things you need to know before you sign the dotted line…

What are Debt Management Services?

Debt Management Services (or debt advice services) in Australia, assist consumers with budgeting, debt assessment, hardship applications, credit repair, refinancing, debt negotiation, informal repayment arrangements and the organization of formal arrangements that fall within the framework provided by Australian Consumer Credit Protection Regulations and Bankruptcy Law.

Budgeting, Debt Assessment and Credit Check

Budgeting is the art of telling your money where to go instead of wondering where it went! And because budgeting is the cornerstone of getting out of debt, any good debt advisor is going to conduct a thorough budget and debt assessment with you before they recommend a debt solution! Here are the steps your debt advisor should follow:

1. Assess Your Income

Your income is the total amount of money you receive after-tax (your take-home pay). Most people generally base their budget around the frequency of their income payments (weekly, fortnightly, monthly) – so for example, if you get paid weekly it makes sense to pay your bills weekly too.  

2. List Your Expenses

Your expenses are your essential needs – those bills you must pay to keep a roof over your head and food on the table. When assessing our expenses, it’s important to identify your regular/fixed expenses (such as rent/mortgage, utilities, rates, groceries, medical, transport, insurance, cigarettes/alcohol, minimum debt repayments etc.) and your irregular/unexpected expenses (such as car services, medical bills, school costs, vet costs). Check out your bank statement to get a better idea of how much you realistically spend over the course of your pay cycle.

3. Calculate Your Budget Surplus

Next, your expenses will be subtracted from your income to calculate how much is leftover in your budget. Having a surplus is usually good news, however, sometimes it may not be sufficient to pay off your debts in a reasonable time. Conversely, if you have a budget shortfall (i.e. your expenses exceed your income), you’re considered to be “cash-flow insolvent” (you don’t have enough money to pay your debts, regardless of the equity in your assets).

4. Review Your Assets

An assessment of the equity you hold in your assets is the next step in determining your capacity to re-pay your debts. Depending on the amount of equity you have built up, the nature of the asset, current market conditions, and whether it is secured to a loan, you may be able to re-pay your debts by selling the asset. However, there may be assets you want to protect (like your house), so it’s important to disclose exactly how much debt and equity are linked to the asset, in order for the debt advisor to ascertain whether it’s even possible to protect the asset.

5. Obtain a Credit Report and Credit Score

Some debt solutions require a good credit score or clean credit history, so it’s normal for a debt advisor to request one in order to determine. Credit reporting in Australia is highly regulated to protect consumers’ privacy (for example to get a loan), so there is usually a charge for third parties to access this information (which your debt advisor may pass on to you). Alternatively, you can obtain a free copy of your credit report and credit score for free from one of these Australian Credit Reporting Agencies (linked for your convenience):




Hardship Applications, Hardship Variations and Debt Disputes

Submitting a hardship application (otherwise known as a hardship variation) to your lender is usually the first step you should take if you are struggling with debt. Hardship requests are a temporary change to your typical repayment schedule, designed to give you the opportunity to get back on your feet – however, note that in some cases, interest will still be charged, and you run the risk that your lender may take action to recover the debt if you still cannot pay once the hardship period has elapsed. When applying for hardship, ask your lender if they have a hardship application form. If not, you will need to prepare your own application, in which case you should provide, at minimum:

• An explanation of your circumstances,

• A breakdown of your budget and expenses proving what you can afford to pay (if at all), and

• Any relevant supporting documentation.

If the debt is subject to a dispute, also check out our article “How to Dispute Debt” .

Credit Repair

If you have a bad credit score or a credit file error, you may be tempted to enlist the help of a “credit fix”, “credit clean”, or “credit repair” service – however, considering you can easily do it yourself, the fees these companies charge can be very (ridiculously) expensive, and they can’t always guarantee a successful result to remove bad credit information. It’s important to note that you won’t be able to remove all payments from the past 2 years, all defaults from the past 5 years and all credit applications from the past 5 years. The two things you can fix on your credit file are errors and outdated information.

Here’s how to get your credit file fixed for free:

• Contact the Credit Reporting Agency to update personal information, duplicate debts, and incorrect debt amounts.

• Contact your Credit Provider and request they contact the credit reporting agency to rectify credit file errors such as:

-Incorrectly listing that a payment in excess of $150 has been overdue by 60+ days.

-Failing to notify you of an outstanding debt.

-Listing a debt that is in dispute.

-Failing to disclose an agreed arrangement or change of contract terms.

-Accidentally creating an account or creating a fraudulent account (i.e., due to identity theft).

IMPORTANT: If you need your credit file updated urgently, it may be quicker for you to get confirmation of the error in writing from your credit provider (via email), and forward this to the Credit Reporting Agency. If no agreement can be reached, a complaint can also be lodged with the Australian Financial Complaints Authority (AFCA).

Debt Refinancing and Debt Consolidation

Consolidating multiple debts/loans into one may sound like a good idea if the interest you are paying is getting out of control, and it can take the stress out of having to manage repayments. But if you are tempted to take out more credit whilst you’re refinancing, or the interest rate and fees are more expensive than you were paying before, you could end up in a worse position financially! Compare other interest rates and fees against your current loan to make sure you get a good deal, and be cautious about loans with a longer term, because you might end up paying more over time, despite a lower interest rate. It’s also important to read the fine print for early loan repayment penalties, application fees, and other such hidden charges – and especially if the debt reconsolidation loan is secured against any of your current assets (such as your property), in which case if you default on the loan, you risk having the asset repossessed and sold to repay the debt!

Debt Negotiation, Debt Settlement, and Informal Arrangements

If you’re drowning in debt, you may be wondering how debt negotiation is even possible – if you owe thousands of dollars, what leverage do you have to get your creditor to agree to alternative arrangements? Well, the reality is that when a debt remains unpaid on a lender’s books, there’s the possibility that it will never get paid and have to be “written off” by the creditor. Therefore, it’s usually in the lender’s best interests to accept a “little bit of something”, as opposed to “all of nothing”! By agreeing to settle the debt for a lesser amount, borrowers are incentivised to make repayments, and lenders are more likely to get paid - a mutually beneficial result that makes the best of a bad situation! On that basis, here are some examples of how a debt can be negotiated:

• Requesting more time to pay and making an affordable payment in good faith,

• Requesting ongoing reduced payments over a longer period of time,

• Requesting a waiver of interest or a reduction in the interest rate in exchange for re-commenced repayments,

• Requesting the payment of a reduced lump sum as full and final settlement.

Whilst it is technically possible to negotiate a debt yourself, having an experienced professional debt negotiator on your side helps to take the stress and uncertainty out of the process, and can help prevent you from “botching” the negotiation and making costly mistakes (such as losing it over the phone in frustration). When seeking out a debt negotiator, look for firms with the following:

• Professional Credentials – We’ve heard it time and time again, that a “friend of a friend” did “this or said that” to get a debt waivered or reduced – however relying on hearsay can give you an unrealistic expectation of just how negotiable creditors actually are. Because debt negotiation in Australia is unregulated, anybody can claim they are a debt negotiator regardless of how much experience they actually have. Therefore, by working with a firm that holds professional credentials in regulated areas of the law, you can at least be assured that they are a legitimate business that is legally licensed to either (a) engage in credit activities (as in the case of Australian Credit Licensees) or (b) carry on a business of providing financial services (as in the case of Australian Financial Services (AFS) Licensees).

• Membership with the ombudsman, AFCA (the Australian Financial Complaint Authority) – If for whatever reason you wish to dispute a debt negotiation service provided to you or lodge a financial complaint, a firm’s membership with AFCA means that you will have access to AFCA’s free and fair external dispute resolution (EDR) scheme.

Formal Agreements

If you have seriously unmanageable debt, or the aforementioned debt solutions aren’t an option for you – a formal agreement may be worth considering. The sooner you obtain assistance regarding your outstanding liabilities, the sooner and you can make an educated decision about the best way to take control of your finances. There are four formal (legally regulated) debt solutions available under Australian Bankruptcy Law – Temporary Debt Protection (TDP), Part 9 (IX) Debt Agreement, Part 10 (X) Personal Insolvency Agreement and Bankruptcy.

Temporary Debt Protection

This solution provides protection from debt collectors/legal actions on behalf of unsecured creditors for 21 days - effectively putting a stop to garnishees, and property seizure attempts to collect an unsecured debt – and giving you the chance to sort your finances out, consider your options, seek professional debt assistance/legal advice and/or enter into negotiations with creditors. Note that TDP can only be applied for once in a 12-month period. For more information about how TDP works, visit AFSA’s website, or if you have any questions call our confidential debt helpline on 1300 003 328.

Part 9 (IX) Debt Agreement

A debt agreement is a legally binding agreement with your creditors, where it is negotiated you will only repay a percentage of the total amount originally owed, over a period of 3 to 5 years. Instead of making payments to creditors, you will pay your debt agreement administrator, who liaises with creditors and manages the distribution of funds on your behalf. Once the debt agreement is complete, you are released of your obligation to repay the full amount you once owed, and your creditors can no longer recover those amounts from you. Eligibility for debt agreements is subject to certain debt, income and asset thresholds. For more information about how Part 9 Debt Agreements work, visit AFSA’s website, and you have any further questions, we’ll walk you through the pros and cons. Call us for an obligation free chat on 1300 003 328.

Part 10 (X) Personal Insolvency Agreement

Similar to a debt agreement, with more flexibility in some areas (such as higher income and debt thresholds), and less flexibility in others (such as the stricter treatment of assets). If you are interested in entering a debt agreement but are ineligible due to having too much income, debt or assets, a Personal Insolvency Agreements may be a viable alternative. For more information about PIAs, refer to AFSA’s website, and you have any further questions, we can help you understand the eligibility requirements and whether this could be a viable solution for your circumstances. Call us for an obligation free chat on 1300 003 328.


Lasting for 3 years and 1 day, bankruptcy can release individuals from most debts, provide relief and allow them to make a fresh start. Bankruptcy immediately stops all collection action, and a Trustee will be appointed to handle your affairs. Given that it’s the last resort, bankruptcy is no small matter, but it’s not the end of the world. For more information about how bankruptcy works in Australia, refer to AFSA’s website, and if you have any further questions, we can walk you through the benefits and consequences. Call us for an obligation free chat on 1300 003 328.

When you’re in over your head with mounting debt, sometimes it can feel like there is no way you’ll be able to pay it off – but we hope this article helps you understand that no matter how bad the situation seems, there are solutions. You shouldn’t need to live in fear of debt collectors or live in a state of guilt or misery due to being unable to pay off a debt. At the end of the day, if you are struggling with debt there are sacrifices that you will have to make regardless of your circumstances, so the sooner you seek advice and address the debt, the sooner you can be debt free. As a professional insolvency firm committed to helping people get out of debt, we try to help people get out of debt without taking on another loan. Call us on 1300 003 328 if you have any questions about any of the debt solutions mentioned here, or if you’d like to get started with a free debt assessment.

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