Paying off debt can often seem like an unimaginable task. However, there are solutions to stop accruing interest and calls from debt collectors. There are a range of effective strategies on offer to help you pay off your debt. These include debt minimisation and financial instruments such as debt agreements, debt consolidation, and personalised budgeting tools.
What is a debt agreement?
A debt agreement is a legally binding arrangement between you and your creditors. In a debt agreement, your creditors agree to accept a negotiated percentage of your combined debts in full and final settlement. This amount is based on your realistic and sustainable affordability. A Debt Agreement is governed under the Bankruptcy Act (1966) and your administrator is regulated by the Australian Financial Security Authority (AFSA). Upon acceptance, a Debt Agreement places a temporary hold on the interest, fees, and charges of provable unsecured debts, provided you uphold your side of the debt agreement. This allows you to repay the debts over an extended period of time at an amount per week, fortnight, or month that you can afford. A Debt Agreement is not a consolidation loan or agreements to borrow money. It is important to note that the following debt cannot be paid out by a debt agreement:
- Debts obtained by fraud
- Child Support
- Fines, penalties, or other court-administrated payments
- Student HECS or HELP
- Secured Debts
Still unsure about how a debt agreement works?
Below are the 5 steps Credit Counsellors Australia will take to formulate your debt agreement:
The team at Credit Counsellors Australia will give you a free debt assessment. This will help them establish your financial situation so that they can be confident a debt agreement is the right solution for you. If it’s not a feasible solution for your circumstances, they will refer you to another service that would be better suited for your needs.
2. Discuss your Options
Not only will they inform you of the various options available, but they will also talk you through the pros and cons of each one until you can feel confident about the decision you make. Whilst it’s a weight off your shoulders to get out of debt, many people do still stress about having to do the research to find the best solution. Credit Counsellors’ team is knowledgeable on all of the debt solutions available to Australians – so you can take peace of mind from knowing that you can ask as many questions as you need until you find the right solution!
3. Contact your Creditors
Your financial consultant understands that contacting creditors and debt collectors about your outstanding accounts can seem daunting, so they will do it for you. Your consultant will act on your behalf to obtain the necessary information from your creditors in order to formulate your agreement, as well as informing the creditors to cease making contact with you directly and to correspond with them instead. Because they are an expert in debt negotiation, your consultant will then be able to negotiate a mutually agreeable outcome, so that you can afford the repayments on the arrangement, and your creditors will be happy to agree to the debt agreement proposal. At this point, you will also be instructed to redirect all payments to Credit Counsellors, so that we can lodge the debt agreement with AFSA.
4. Working with You
Once your debt agreement proposal is lodged, your consultant will work closely with you to keep you updated on the progress of your application, to ensure a smooth and transparent process you can feel comfortable with. By this point, you shouldn’t receive any further contact from your unsecured creditors at all.
5. Finalising the Debt Agreement
Once we hear back as to acceptance of the arrangement, the team will then finalise the paperwork, and make sure you understand all the terms and conditions associated with a debt agreement, before having it signed by all necessary parties. After this point, the debt agreement becomes binding, which means that you are formally protected under the terms of the agreement. From this point, all you’ll have to do is make one single ongoing payment to us, and we will disburse the funds to creditors as per the debt agreement terms. If you have any issues or questions throughout this process, you’ll still have us on your side to help guide you through everything!
Credit Counsellors Australia are here to support you and will do what we can to help you stay on track to reaching your financial freedom. For more information about how debt agreements work, check out AFSA's Website.
What are budgeting tools?
A budget may seem like a simple task but coming up with a financial plan can be a difficult process and will be different for everyone based on incomes and expenses. Formulating a realistic budget is one of the best ways to manage your finances. People often avoid budgets because they don’t want to face what they are spending and how much money they owe. If this is the case for you it could be time to ask for help. A budget can be an individual goal and can also work well for couples sharing costs. Making a budget will help you pay off a credit card or loan, allocate money for upcoming bills and find a balance between saving and spending.
- For budgeting and saving tips, check out this video.
- Work out how long it will take you to reach your savings goal using this free calculator.
- Find out how to plan a budget and stick to it in this video.
What is Debt Consolidation?
Debt consolidation is designed to leave you with a manageable monthly repayment at a lower interest rate than what your current creditors are charging. When assessing your eligibility for debt consolidation, generally the financial consultant will assess whether or not debt consolidation is the right solution, given your specific circumstances, and calculate the difference in interest rates to find out if this solution is the most beneficial for you long term. This option would typically combine your debts into one debt with one interest rate, so you don’t have the burden of dealing with a number of different creditors. There are three things you should consider before signing a debt consolidation loan contract:
- Compare the interest rate, fees, and charges. You want to make sure you will be paying less on your new loan by comparing the interest rate.
- Check the terms and beware of longer loan terms. Even if you end up with a lower monthly repayment, if the length of time it will take you to repay the debt increases dramatically, you might end up paying a lot more over the long run.
- Make sure the company is licensed. If they are not licensed with an Australian Credit License number, they may be operating illegally.
At Credit Counsellors, we assist people who are insolvent to find a way out of the burden of unmanageable debt. Whether you have a pretty good idea of which debt solution is right for you, or you are just starting your journey, you’re welcome to call and have a chat with a member of our knowledgeable team, who will be able to answer any questions you may have! Call us on 1300 003 328, or email firstname.lastname@example.org. We look forward to speaking with you and helping you on your way to a debt-free life!