Getting out of debt and getting hardship help

Debt can feel overwhelming, but you’re not alone and there is a way through. The most important step is the first one: facing the numbers and asking for help early.

Step 1: Get the full picture

Write down every debt you have. For each one, note:

• who you owe
• how much you owe
• the interest rate
• the minimum repayment and due date
• whether you’re behind

Include credit cards, buy now pay later, personal and car loans, your home loan, bills, fines and any money owed to the ATO or Centrelink.

Then look at your budget. How much can you realistically put towards debts each month after essentials?

Step 2: Put essentials and priority debts first

Not all debts are equal. Generally, people focus first on keeping a roof over their head, the power on and food on the table.

Priority debts are usually those where falling behind has serious results, such as:

• rent or home loan, because you could lose your home
• secured loans, such as a car loan where the car is security
• power, gas and water
• fines that could lead to licence suspension

Unsecured debts, such as credit cards and buy now pay later, still matter, but are often dealt with after these.

Step 3: Ask for hardship help

If you can’t keep up, you have a legal right to ask your lender for a hardship variation. This means changing the loan terms for a while, or longer, because of things like job loss, illness or a relationship breakdown.

• Ask by phone or in writing. Writing is useful because it creates a record.
• Say you’re experiencing financial hardship and explain why.
• Say what you can afford to pay, and for how long.

The lender generally has 21 days to tell you its decision, or to ask you for more information. If it says no, it must give you reasons and tell you about your right to complain to the Australian Financial Complaints Authority (AFCA).

Hardship help might include pausing repayments, lowering them for a time, extending the loan term or freezing interest.

Step 4: Choose a way to pay debts down

Once things are stable, pick a method and stick to it.

• Avalanche: pay extra on the debt with the highest interest rate first. This saves the most money.
• Snowball: pay extra on the smallest debt first. Quick wins can keep you motivated.

Either way, keep paying the minimum on everything else.

Avoid paid “debt help” traps

You may see ads promising to “wipe your debt”, “fix your credit” or “cut your repayments in half”. Be very careful.

• Debt management and credit repair firms must now hold a credit licence and belong to AFCA. Even so, their fees can be high and can leave you worse off.
• Some suggest a debt agreement or bankruptcy. These are serious legal options with long-term effects on your credit and finances.
• Many things these firms do, like asking for hardship help or fixing credit report errors, you can do yourself, or a free financial counsellor can help.

If a lender won’t help fairly

First, complain to the lender directly using its complaints process. If you’re not happy with the answer, you can complain to AFCA for free. AFCA can look at hardship decisions, debt collection and lending complaints. While AFCA is looking at a complaint, lenders generally can’t take legal action to recover the debt.

Where to get free help

• National Debt Helpline – free financial counselling on 1800 007 007 (Monday to Friday, 9:30am to 4:30pm) or https://ndh.org.au
• AFCA – free complaints on 1800 931 678 or https://www.afca.org.au
• Services Australia – support payments if you’ve lost work or had a health setback at https://www.servicesaustralia.gov.au
• Lifeline – 24/7 support on 13 11 14 if money stress is affecting your wellbeing