At some point in life, you might find yourself buried under huge debt that you can’t seem to get out of. It’s a helpless feeling that a lot of people experience, every day. To get out of a horrendous debt situation, you’ll likely have to look into debt relief solutions. What is debt relief, you might ask? It means finding a legal pathway to get rid of your entire debt, or at least lessen its burden. There are many debt relief agencies that offer different solutions, but it’s important to know that not every solution works for each individual. Some debt relief plans have consequences that must be taken into account before making a decision. So, we’re here to take you through the options, so you can familiarize yourself before making a decision. Get in touch with our friendly team of Credit Counsellors who help you get relief from debt.
How to Start Getting Relief from Debt?
The first thing you need to get clarity on, is whether or not you can pay off your unsecured debts within 5 years. Unsecured debt means things like personal loans, credit cards, or any outstanding hospital and medical bills. Suppose you are absolutely sure that you cannot pay off these debts within a 5-year time frame. Then you could declare bankruptcy or seek out debt relief settlement plans. However, if you think you can pay off the unsecured debt, then you may be able to get out of the situation without having to seek financial assistance. For example, you can try a strict budget, acquiring better interest rates, debt consolidation, huge spending cuts, or increasing minimum monthly payment.
If your financial situation is dire:
1. Declare Bankruptcy
It sucks to say it, but that’s certainly an option if you cannot get out of debt no matter how hard you try. Applying for bankruptcy can help you in getting rid of debt or significantly reduce it, but it also has some severe consequences and should always be the measure of last resort. Declaring bankruptcy will severely affect your credit score, and it will make it much harder for you to borrow in the future. In some cases, it could make it harder to land a new job because as some employers check your credit score and financial history. In Australia, you don’t need a lawyer to apply for bankruptcy. Still, it is very much recommended to speak to a personal insolvency professional, as bankruptcy can be very complex.
Applying for bankruptcy is not the only option! You can always get in touch with us and assess your other options. For example, if you’ve taken out a loan and you find yourself unable to keep up with the payments, you might be able to get a “forbearance”, which means you can stop payments for a specific amount of time. This can be huge when you’re on your last legs, and it can help by giving you some breathing space. Don’t panic – call us!
3. Debt Management Plans
A debt management plan means that you can pay your debt in an easier manner, usually with some fees being waived. When you enter an agreement with a debt relief agency, you’ll make a single monthly payment to that company - they, in turn, will pay off your creditors. The creditors, such as banks, usually have agreements set in place with debt management and debt relief companies that allow them to operate in this manner. The downside is that you will be unable to use your credit cards during your debt management phase, as they will be suspended for the duration until the payments have been completed. Suspended accounts could also hurt your overall credit score, so you should take that into consideration.
How to manage your debts by yourself:
1. Set a Strict Budget
A simple solution for getting rid of debt is to cut down your spending. Set a strict monthly budget. Cut off all unnecessary spending like any type of leisure, going out to eat, going to the movies, taking holidays, etc. Make sure that you’re only spending money on the essentials. This can obviously benefit you because you won’t be adding to the debt that’s already there, so you can manage it and slowly pay it off.
2. Increase Monthly Payments
Another method is to increase the amount of debt you’re paying each month so you can get out of it sooner. Banks will charge interest on a daily basis and only require you to pay a minimum monthly fee. Increasing your monthly payment ensures that you end up paying less over time. If you continue with the minimum payment plan that’s been suggested by the creditor, the daily interest rate will keep piling up over time. This, of course, can be difficult if your income is already restricted, but it can certainly benefit you in the long run.
3. Balance Transfer
If you already have a good credit score, another option you could try is to contact your creditor or bank and ask for a 0% interest rate balance account transfer. These are special accounts that could give you zero or very low-interest rates for a specific amount of time. Using these accounts will give you some breathing room since you don’t have to pay any interest on your debt. Please keep in mind that all of these methods work as long as you don’t build up your debt again. Depending on how much your debt is, some lifestyle changes will probably need to be made in the long run to make sure you don’t build up the debt again over time and find yourself on square one. These methods are only effective if you can stop your debt from growing.
Here Are Some Things to Avoid If You Want to Relief from Debt
- Do not draw for your retirement fund.
- Be cautious with credit and debt services. Some might push you down the roads that could make your situation worse.
- Always pay your secured debt on time (things like a car loan). Never put off the payment of secured loans to pay off unsecured ones. If you default on a secured loan, you could end up losing the asset (for example, your car or home).
- Do not take out loans against the equity of your home. This could end badly as well. Defaulting on these loans could lead you to foreclosure and losing your home.
Being in debt is a huge burden that most of us experience at some point in life, and a lot of us deal with it every day. Dealing with debt all the time will take a heavy toll on one’s life. We hope this article has helped point you in the right direction. We’re certain you’ll make the best choice possible. If you’re in need of further assistance or have any questions at all, please contact us. We’ll be happy to help.