Debt Relief – How To Pay Your Bills If You Have Lost Your Job

woman-with-bills

Debt Relief In An Uncertain Time

Debt relief in these economically uncertain times is one of the biggest hurdles facing Australians. In recent years we have watched as unemployment rates rise and household debts climb higher and higher. It is estimated that most households now owe more then twice what we did just ten years ago. It comes out to an average of $160 of debt for every $100 we make after taxes. Those numbers are clearly a disaster waiting to happen.

In many extreme cases consumers carry up to $400,000 in credit card debt spread out over forty or fifty cards. Of the cards that we all have in our wallets a staggering 75% are not paid off each month. These same cards accrue interest at rates hovering near 20% on average balances of over two thousand dollars.
Reduce Credit Card Debt There are some bright spots on the horizon, mostly a noted improvement in our fellow citizens commitment to reducing debt. Some debt relief companies have also seen a move towards saving more money in preparation for whatever difficult trials the economy throws at us next. If you are one of the people who wants to get out of debt, even if you are unemployed there is hope. One of the first options to look at are financial counsellors. Financial counselling is a free service that can help you figure out your options and learn how to control spending. Another option that is often referenced is debt relief companies. But, consumers should be aware that these companies are known for getting consumers into debt agreements that will negatively impact your credit history and wind up costing more money rather then less.

Debt Relief Steps

1. Evaluate or come up with a budget

There are loads of ways to reduce your expenses like selling as second car or cutting back on entertainment costs. You can also increase your income by taking on a second job or taking in a boarder. Find out more about how to set and plan your budget as well as access tools to help you track your expenses.

How to plan your budget

2. Ask for Advice
Although it might feel like it, you are not the only person facing budget problems. Ask your friends and family what they do to cut costs and increase income. Scour the Internet for helpful websites concerning debt relief.

3. Pay extra
This is not an easy option, but once you have cut costs and/or earned more money use it to make extra payments on your credit cards or mortgage. In the long run it can save you thousands of dollars in interest.

Choosing Debt Relief

If you, like a lot of Australians are worried about your employment you need to start planning now for the worst case scenario. If you start to evaluate and plan now things will be much easier should your job situation change or you are briefly unemployed.

Those who are already in financial trouble or are unemployed need to work quickly to deal with their debt. You should immediately contact your creditors so they know you are having a problem rather then that you are just skipping out on your bill. You should also enlist the help of a debt counsellor right away. If you wait until you are way behind on your bills you will have less choice in how your debt is handles. Also, resist the urge to do things that exacerbate the problem like paying your credit card bill or mortgage with another credit card. This will only make matters worse and increase your debt astronomically.

Instead, look into applying for short term debt relief, remember your creditors do not want you to default on your bills either. It is better for you and them to work out a plan that meets your needs and pays off your bills. Just keep in mind that it is not a magic fix. Debt relief options could be costly and damage your credit so make sure you have tried every other avenue prior to taking this step.

Getting Debt Relief Help

In Australia the Big Four banks have announced that if a borrower loses their job they could be considered for a debt relief holiday for up to twelve months. This is an indication that lenders are feeling the pinch too and are more willing then ever to help you meet your payment responsibilities. If you do not qualify for a full holiday you might be able to increase the length of your loan to reduce payments or make interest-only payments until you are back on your feet.

Credit cards can be dealt with by asking the issuer to switch you to a lower interest card or to take out a personal loan to pay off the card debt. A personal loan will carry significantly less interest and probably have a lower monthly payment. If you do either of these options you should immediately shred your credit card and use cash or a debit card in its place.

How To Pay Your Bills

Whether you are behind or think you are in danger of getting behind your first line of defense should be financial counselling services. These independent counsellors provide free assistance to help you manage your money and control your debt. They will also help you by negotiating with your lender on your behalf, however they usually suggest that you make an attempt first. By doing some of the negotiations yourself you can feel better about how your debt is being handled and more in control of your own destiny.

Where To Get Help To Pay Your Bills

There are services available to help if you have trouble with specific bills.. If you are caught up in debt or are unemployed check out these services.

  • Energy Bill Debt Relief

Most energy retailers have a flexible payment option. Contact them first to see what choices they offer. In some cases you might be able to get government assistance. Contact your local fair trading or consumer affairs branch.

  • Tax Bill Debt Relief

If you have serious debt problems and need relief from all or part of your tax liability contact the Australian Taxation Office. They can delay or relieve your debt payment. Visit www.ato.gov.au for more information.

  • Early Super Release

If you meet certain criteria you may qualify to access a portion or all of your superannuation money. This only makes sense in you are in a short term debt problem and there are many risks involved including losing your superannuation for good or losing your home. Visit www.apra.gov.au to explore this option.

Example: Living Beyond Your Means

Many Australians can probably relate to the issues faced by the fictional couple Bill and Sue. They are a married couple in their mid 30′s with two children who both worked. Bill’s employer was forced to cut expenses and cut his pay which amounted to half of his income. At the same time the economy forced Sue to shutter the windows on her small business. They had a debt of $40,000 in personal loans and credit cards.

To help deal with the debt relief problem they enlisted the help of a debt relief counsellor. She helped them make a budget that provided them with real numbers on their pre debt repayment living costs. These numbers showed them that even without paying any money toward the debt they were spending more then they made.

The first thing they needed to do was deal with their income and their expenses. Sue chose to file bankruptcy on the costs of her business while Bill worked out a hardship payment plan on their debts. While Sue’s credit file took a hit, Bill was able to maintain his which helped them to feel better about meeting their goal of someday owning a home.

The Perils Of A Debt Agreement

A debt agreement is a binding contract between you and your creditors wherein they agree to accept the amount that you can afford to pay. To be eligible for one of these agreements you must be unable to pay your debts at their due date and have an after tax income of less then $61,875. Further you can’t owe more then $82,500 in unsecured debt nor can your assets add up to more then that amount. In these agreements the debts freeze, which means they no longer earn interest and you agree to pay a specified amount each week for the next three to five years.

A debt agreement administrator is typically the person that negotiates your plan. They will work with lenders to come up with a budget plan to pay off the amount you owe. However, it is a well known problem that these administrators set up plans that are often not realistic which causes borrowers to default on the debt agreement. It is of the utmost importance that you go through all the details of your agreement and budget to make sure it correctly reflects your situation and has realistic goals.

Any debt agreement must be lodged with the Insolvency and Trustee Services Australia as well as a majority of your unsecured creditors. All parties have to agree or it is not binding. On average you will be required to pay back between 75% and 25% of your debt in addition to a set up fee of $2000 and an administration fee. This fee is usually 20% of the total owed amount and is paid to the administrator of the debt agreement. The government will also charge a fee of 3.5% of the amount owed.

Remember too that debt agreements are not for secured loans like mortgages or auto loans. Should you default on those loans your home or vehicle could be repossessed. The debt agreement loan is only for personal loans or credit card debts. If you default on your repayment agreement you could be forced to file bankruptcy by your creditors.

Bankruptcy For Debt Relief

Bankruptcy is an expensive way to relieve debt. While it frees you from all of your payments it also allows the creditors to take anything you earn or acquire for three years. Any assets you have or earn will be sold to repay your creditors. This includes any inheritance you may receive during the three year bankruptcy period. You will also have to repay 50% of your after tax income about $41,250 for a single person. You will not be able to have a job that requires a licence or involved dealing with money. You will also have to get permission from your trustee to travel abroad. Visit www.itsa.gov.au for more information on bankruptcy.

Example: Dealing With A Debt Administrator

Bethany is a working mother of two and a wife who has found herself in mounting debt. She contacts a debt administrator for help with her situation. In total she has three credit cards with debt near $69,000 and a joint card loan with her husband as well as one in her own name. The car loans are secured and therefore not applicable to a debt agreement. The administrator negotiated for her and comes up with a bill of $48,000. Of this she will spend $36,000 to repay her creditors, $10,400 for her account set up fee to the debt administrator and $2,600 for the government charge

She agrees to pay back the money over three years at a rate of about $250 which will increase to about $300 once she pays off one of the card loans. The payments leave only enough money for Bethany and her husband to meet their rent payment, food, and the car loans. Other costs like school trips and dining out will be difficult to cover under these terms. Should they fail to meet the requirements the creditors could get an order to force them into bankruptcy.

Your Have Debt Relief Rights Under The Consumer Code

The Uniform Consumer Credit Code is intended to help figure out how to pay your bills when your debt gets out of control through no fault of their own. Becoming unemployed, illness, or family disruption are some of the reasons you can use to renegotiate your debts. However, you mist act quickly to make an application for hardship variation or your loan.

Section 25 of the Code of Banking Practice says, “We will try to help you overcome you We will try to help you overcome your financial difficulties with any credit facility you have with us. We could, for example, work with you to develop a repayment plan.” This will help you if you are in debt to a bank. Too often people try to deal with debt by going into more debt with credit cards and loans rather then asking for help. Once they can no longer borrow money or get credit their only choice is bankruptcy.

Contact your lender right away when you have a problem and ask if you can apply for temporary relief. They may waive fees or interest or reduce your minimum payment. Be sure to offer to make payments that you can afford after you have covered your regular living expenses and other debts. The lender will have a procedure in place to assess your application. If your lender refuses complain to the Credit or Financial Ombudsman Service, free to all consumers. You may also opt to have your case heard by the state court or tribunal. However, lenders are trying to be fair and are increasingly likely to help you manage your debt.

Back to top
Was this content helpful to you? No  Yes

Related Posts

Ask a Question

You are about to post a question on finder.com.au

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Disclaimer: At finder.com.au we provide factual information and general advice. Before you make any decision about a product read the Product Disclosure Statement and consider your own circumstances to decide whether it is appropriate for you.
Rates and fees mentioned in comments are correct at the time of publication.
By submitting this question you agree to the finder.com.au privacy policy, receive follow up emails related to finder.com.au and to create a user account where further replies to your questions will be sent.

6 Responses to Debt Relief – How To Pay Your Bills If You Have Lost Your Job

  1. Default Gravatar
    Stephanie | July 9, 2016

    Hello,

    I was made redundant back in April and have not been successful in obtaining full time work as of yet, even though I have applied for millions of jobs and attended a decent amount of interviews. Currently I cannot even afford food/petrol, let alone my debts such as my mortgage. I am also behind on every credit/debt/account I have such as phone bill.

    I was only able to apply for Centrelink assistance (Newstart & Low Income Health Care Card) due to receiving a small payout (which went to bills/everyday living and is already gone). Currently waiting on hopeful approval.

    I have seen a financial counsellor just recently who I did not find helpful as I do not have any income to be able to make a financial hardship arrangement with lenders, and I already know everything we discussed.

    I also tried to access my super but don’t qualify.

    I am at a loss. There is so much information for every other type of situation out there but mine.

    Any advice or assistance you could provide would be greatly appreciated.

    • Staff
      May | July 21, 2016

      Hi Stephanie,

      Thank you for your comment and I’m sorry to hear about the difficult situation you’re going through.

      Just to confirm though that you have come through to finder.com.au we are an Australian financial comparison website and general information service. As we are not credit experts, we can only provide a generalised advice.

      As we cannot provide you with an expert advice nor recommend specific lender/credit card company to you, you might like to reconsider and try to contact your lender and discuss your present situation with them and seek options on how you’ll be able to waive fees/interest or maybe reduce your minimum repayments.

      You’d also be best not to stop looking for a job, though some of your applications may be rejected, that doesn’t mean you’ll quit, it only means that you have to keep looking until you get successful. Indeed, to figure out how to pay your bills when your debt gets out of control is hard, not mention to where to find means to provide and sustain your everyday basic needs.

      I apologise if I may not be able to give you the best advice, but I hope we’re able to encourage you to get on with your life, be positive and that in the near future you’ll be able to get through your difficult situation.

      Cheers,
      May

  2. Default Gravatar
    Bev | March 2, 2016

    Hi
    I am unemployed, have debt and struggling every way financially. I don’t know where to turn to now. I have sold what I don’t need, and getting depressed. Help please.

    • Staff
      Sally | March 2, 2016

      Hello Bev,

      Thank you for your comment and we’re sorry to hear about your current situation.

      If you’re unemployed and looking to consolidate your debt, you might want to consider a loan from some of the lenders that accept unemployed applicants. You can compare your options using this guide.

      When comparing your options, make sure to confirm that you meet the eligibility requirements before applying as declined applications will have a negative impact on your credit file.

      I hope this has helped.

      Good luck!

      Sally

  3. Default Gravatar
    Jasmine | March 23, 2015

    I currently have 3 debts that I have to pay off all of which I have applied for financial hardship for .
    I am currently unemployed so I am receiving help off my partner for now.
    All of my creditors are saying that they can assist me from 3 to 6 months but due to the difficulty of finding another job , I am worried that I will still be unemployed after the time limit. What would you recommend would be the best thing to do in my situation?

    • Staff
      Jonathan | March 23, 2015

      Hi Jasmine, thanks for your inquiry!

      Please refer to the link I have sent to your email which will explain the options you can take in detail when you are in financial hardship.

      Cheers,

      Jonathan

Credit Cards Comparison

Rates last updated October 1st, 2016
Purchase rate (p.a.) Balance transfer rate (p.a.) Annual fee
Virgin Australia Velocity Flyer Card - Balance Transfer Offer
Enjoy a 0% p.a. balance transfer offer for 18 months and also earn 2 bonus Velocity Points in the first 3 months on everyday spend.
20.74% p.a. 0% p.a. for 18 months $64 p.a. annual fee for the first year ($129 p.a. thereafter) Go to site More info
ME Bank frank Credit Card
Enjoy a low and consistent interest rate on purchases and cash advances, combined with no annual fee.
11.99% p.a. $0 p.a. Go to site More info
St.George Vertigo Visa
Introductory offer of 0% p.a. for 18 months on balance transfers and 1% p.a. for 12 months on purchases, plus a low annual fee.
1% p.a. for 12 months (reverts to 13.24% p.a.) 0% p.a. for 18 months $55 p.a. Go to site More info
HSBC Platinum Credit Card
Receive a full annual fee refund and save $149 if you meet the $6,000 spend requirement. Enjoy a balance transfer offer and platinum card benefits such as complimentary insurances and concierge services.
19.99% p.a. 0% p.a. for 15 months $149 p.a. Go to site More info

* The credit card offers compared on this page are chosen from a range of credit cards CreditCardFinder.com.au has access to track details from and is not representative of all the products available in the market. Products are displayed in no particular order or ranking. The use of terms 'Best' and 'Top' are not product ratings and are subject to our disclaimer. You should consider seeking independent financial advice and consider your own personal financial circumstances when comparing cards.

Ask a question
feedback