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ISCOVER
Life is meant to be enjoyed. We only have a short time on this earth, so why is it that so much stress and relationship issues revolve around money and debts?
It’s a familiar situation – you may have a client who is renting or has a mortgage and is faced with the situation of mounting personal debt. They are receiving calls from creditors each day, letters in the mail and maybe someone knocking at the door demanding payment. They sit there and think ‘What can I do?’ Rather than putting their head in the sand and ignoring it, they need to take action. With the situation they are in, it can’t hurt. Here are five options that could help ease the financial burden for these borrowers:
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1. Ask them to approach their lender(s) and ask for hardship assistance. This is a great initial option if things are a bit tight for a small period of time, and they know things may be sorted soon. That said, what happens if it isn’t short term?
2. Assist them in topping up their home loan facility to pay out other debts. The concern with this is that there may not be enough available equity, or they may not meet lenders' loan servicing criteria if circumstances have changed.
3. Sell their home, and pay off their debts and rent. This may work for a period of time, but they would then be at the mercy of a landlord and never be sure how stable their living situation may be. Add to that the fact that once they are out of the property market, getting back in will be hard, if not impossible.
4. Help them negotiate with their lenders for a reduced lump sum payout amount on their debts. This sounds all well and good, but do they have the money to pay this lump sum? Probably not.
5. Ask family and friends or apply for a personal loan. If they have had late payments or arrears on their current debts, it could not score very well with the lender.
However, if any of the above are not an option, what do they do? Subject to full assessment to make sure the option is appropriate, a debt agreement could be the solution. It allows for unsecured debts such as credit cards, personal loans and tax debt to be put into a government-regulated agreement and combined into one manageable repayment based on what the client can afford. Repayments will drop because there is no interest (once the agreement has been accepted) and creditors will get off their back.
Before you start disagreeing and saying a debt agreement sits on the client’s credit file for five years and can affect them borrowing credit, think about it – what else can they do if the above options have failed, or if they have had a serious health issue or personal event such job loss or income reduction, and just cannot keep up?
Seeing first-hand every day the stress, relationship issues and serious health concerns that these clients are going through – all because of debt – having a mark on their credit file and not being able to access credit is usually the last thing on their minds. Why? If they can have five years of less stress knowing that their debts are in a manageable repayment plan, that they won’t be harassed over the phone anymore by creditors, and that they have a little more money to maybe buy the kids an ice cream or a magazine, isn’t that better? All too often, health issues brought on by stress and worry take lives and add to our burgeoning health system costs.
Many of you will also worry that if the clients are renting, they won’t be able to buy a home due to the credit report listing. Two things come to mind here:
1. In my experience, that isn’t usually a concern for them due to the fact that the existing debt repayments they had weren’t going to allow them to buy due to lender serviceability ratios of existing debts.
2. Even if they did qualify for a loan with existing debts in play, they most likely wouldn’t have been able to save enough of a deposit in the five years because all their spare funds have been going to debt repayments.
Sometimes we need to sit back and press reset on credit, and realise that some things have to wait so customers can live another day without stress and worry.
Peter Ellis, financial wellbeing specialist, Fast Debt Help
Peter Ellis is a financial wellbeing specialist from Melbourne, Victoria. Experienced in helping individuals and companies deal with unmanageable debt, Peter and his team work hard to ease the pressures that being in debt brings. Peter also works with like-minded companies from around Australia introducing solutions, education and advice on all things related to managing debt.
