Debt Management Guide: How to Cope with Serious Financial Difficulties

With mounting mortgage, car loan and credit card repayments to handle, it’s little wonder that most people are living in debt these days. Ignoring the debts is not going to help anyone. It’s only going to make it worse.

No matter how hopeless the financial difficulties are, the best thing to do is to take control of the situation. Here are some tips on dealing with debts.

Good Budget Planning

Before things really go out of hand, it’s important to have sound finance management and budget planning. Every month, set aside money that should go to the mortgage, car loan and credit card bill repayments. Decide how much can be used for groceries, utilities, clothing, books and other needs. Stick to the budget and keep track of how the money is spent. Using money management software and online personal budgeting tools may help too. With good budget planning, debts are unlikely to pile up without warning.

Realistic Repayment Plans

If there is real difficulty in settling a debt repayment, there will be a need to negotiate repayment plans with the creditor. Don’t delay this. Contact the creditor as soon as it becomes clear that repayment will be impossible before the payment due date.

Many banks and utility providers are willing to help their customers make repayments by extending the period of repayment or agreeing to settle the whole debt if a lump sum payment of part of the debt is made. However, be realistic about the repayment plans when negotiating with the creditor. Consider other financial commitments before deciding on a repayment plan.

Knowing Debtor’s Rights and Responsibilities

Debtors should never run away from their debts. Even with debt collectors knocking on the door, a debtor still have legal rights and protections. But first, a debtor should make sure that he actually owes the debt. Get independent financial advice if there is doubt about the debt’s owner or the amount of debt owed.

In addition, the debtor should know how to deal with debt collectors. Be cooperative and expect to be treated professionally if contacted by a debt collector. In general, debt collectors must not mislead, threaten or become abusive when attempting to collect debts. Make an official complaint to a consumer protection agency if there is misconduct on the debt collector’s side. In Australia, the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC) are the best places to lodge a complaint.

Help from Financial Counselors

Free financial counseling services are also available in every state in Australia. The financial counselors are trained to help people with deep financial difficulties. Basically, they help people to plan and manage their finances more effectively, deal with debt collectors, overcome gambling problems and evaluate bankruptcy and its consequences. Visit the Australian Financial Counseling and Credit Reform Association (AFCCRA) website for more information.

Dealing with debts and debt collectors is unpleasant. However, ignoring the situation will only worsen it. The best defense against debt is good budget planning. If that fails and the debts pile up considerably, try to negotiate realistic repayment plans with creditors, understand your rights and responsibilities as a debtor and get help from financial counselors.