Dealing with bad debt in Australia is a common challenge these days, for both businesses and individuals. The 2018’s household wealth and debt data revealed that the average Australian household owed $250,000. According to investment bank Morgan Stanley, this figure has been on a steady upward course since 2003. People are losing confidence in their ability to avoid a debt trap, with a wide-spread sentiment exposed in the media.
The data also showed that high-income households hold the most debt, and they had the ability to service their loans. That’s a positive indicator, but things can quickly turn gloomy in the event of life situations that end or reduce your income. Getting more responsibilities along the way, such as school fees or hospital bills, can also make it difficult to commit to your debt obligations.
When you’re unable to make the agreed repayments, the chances of defaulting are pretty high. But you don’t want it to get there and allow your credit rating to take a hit. You can negotiate the debt with your creditor to get more favorable terms or even a lower debt amount.
DebtCo, a company that helps businesses and individuals in Australia to avoid insolvency provides in-depth information on the Australian market. DebtCo sounded the alarm recently when Roland Bleyer, the CEO said: “Thousands of Australians now struggle to keep up debt repayments. Most of these are hardworking people who feel that the system which was once thought to be bubble proof, is finally failing them. This includes small business owners. We at DebtCo help many people to avoid bankruptcy and insolvency through proactive debt negotiation – and in many cases, we succeed at getting creditors to write off their debt completely.”
Know Your Debt Negotiation Options
The success of your debt negotiation campaign depends on your creditor’s willingness to revise the terms of your debt arrangement. Even if they accept, they can offer different arrangements to help you settle the debt. Understanding these options will help you manage your new obligations easily.
The common option is paying the debt in a lump sum. In this case, the creditor can accept a lower amount than what you owe them as long as you pay the agreed amount once. Most creditors will work with this option if it’s the only way they have to recoup a percentage of what you owe them; it’s better than losing it all.
You can also request them to extend your repayment period if your financial hardship is a short-term problem. For example, if the initial repayment period was 24 months, you can ask for 36 months. This allows you to spread the amount evenly across the months, making the monthly installments manageable.
Another option includes negotiating to have your creditor waive the interest rate. Sadly, most creditors will turn down such requests, but it’s still worth a shot. You can also ask them to completely waive the debt, but you’ve to really demonstrate that you’re unable to pay the debt now or anytime in the foreseeable future.
4 Essential Debt Negotiation Tips
Now that you understand your options, how are you going to approach your creditors? The one thing to note is that you should always reach out first the moment you realize won’t meet your debt obligations.
Don’t wait for your creditor to make countless calls and send you letters for you to reach out to them. Here are tips you can use:
1. Take Action First
No one knows what you’re going through unless you speak out. So, there is no reason to wait for late fees and overdue notices to pile up just because you’re afraid to reach out to your creditors.
Finance hardships are pretty normal in life, and the majority of Australians experience them, over 70 percent have debts. If you suspect a possible financial turmoil, make the first step to contact your creditor. Let them know about your hardships and negotiate for an alternative arrangement for your debt.
2. Apply for Hardship Variation
In Australia, you can apply for a hardship variation by phone or in writing. Be sure to provide the details of your loan, include the account name, account number, and the installment amount. Let them know that you want to change your loan repayments due to financial hardships.
When negotiating the amount, make sure it’s something you can afford. It’s pretty pointless to agree on an amount that will still be too high to pay. If your creditor turns down your hardship application, they must give reasons. You’re free to complain to their internal team.
3. Hire Professional Debt Negotiators
It’s very possible to negotiate the debt with creditors by yourself, but the process becomes easier when you seek help. Professional debt negotiators are the go-to people when you want someone to speak out on your behalf.
Upon hiring one, they’ll assess your case to determine the possible deals to negotiate for. They’ll reach out to your creditors on your behalf to present your case, and negotiate for the best possible deal. Most negotiators’ charge is usually a percentage of the agreed cut, and some won’t charge you if they fail to secure a deal.
4. Get Help in Money Management
Most debt problems usually arise due to poor money management habits. The majority of borrowers are pretty able to service their loans, but how they manage their money is the problem. A 2019 study showed that about 31 percent of Australians confessed to poor financial management.
You can hire a financial counselor to help you regain control of your financial life. They’ll review your monthly income and expenses to determine the best possible savings plan for you. Alternatively, you can get free financial advice from the National Debt Helpline, although they are unlike to be as swift and capable as professional debt negotiators.
It’s not a good thing to be overloaded on debt; it can cause hardship spreading to other areas of your life. Basically, it means you’ll have to cut back on spending heavily to keep up with your repayments. If things get tough, debt negotiation is a sure path to getting some relief.
Reach out to your creditors or high a negotiator to do it on your behalf when you feel you won’t uphold your debt commitments. Most creditors are willing to sympathize with your situation if you demonstrate your inability to service the loan as per the initial agreement.