Avoid Excessive Debt

Everything in moderation is a good thing we are told,  when you tip over the edge of moderation  life becomes rather uncomfortable. 

 

So, how to avoid getting into excessive debt.... first of all you need to be aware of what is actually excessive and this is different for everyone.

1.             Itemise what debts you have

Sounds simple however many clients call us without a real understanding of what their debts are,  perhaps it is some kind of denial? 

Get in touch with what your debts are,  collate your statements and total it up.... surprised?  Most people are.

2.             Keep your eye on the ball

Now that you are aware of what your debts are,  repeat this exercise next month.  Sounds basic,  however the basic stuff works. 

Did your debts go up or down since last month?  Are you noticing any trends ie. days of the week when spending peaks?

Emotional or personally challenging times when your spending increases? What kind of adjustments can you be making to avoid a repeat of this exercise next month?

3.             Impulse purchasing

Most excessive debts are closely linked with impulse purchases,  you know the kind -   seemed like a good idea at the time,  too good a deal to pass up, pressure sales,  upsold by pushing sales person.   

If you are making a purchase, make it a conscious one, this goes a long way to avoiding excessive debt.

4.             Set a budget rather than a wishlist

For most people a budget is akin to swearing at them,  most have an idea of what kind of features they would like in their new car/ home/ holiday rather than looking at their budget and getting the most value for your dollar. 

If you have $25,000 to spend on a new car or can afford $500 per month in repayments have a look in that market for your purchase, don’t go tempting yourself in the next pricing category, you and the sales person will talk yourself into something you simply cannot sustain which will ultimately cost you more on many levels.

5.            Easier to acquire debt than to repay it

Key is avoiding excessive debt is being conscious about when you obtain it in the first place.  If you need a credit card for emergency purposes (lots of clients insist they need a credit card for this alone) then set a realistic limit. 

Don’t take up the offer of increasing limits when offered by credit card providers,  it is up to you to exercise some restraint and take responsibility for your purchasing habits.

6.             Do the maths

If the only way you can buy the new plasma TV is on interest free,  work out the repayments,  how much do you need to put away to avoid the 30% interest rate when the interest free holiday is over, what is going to change in 24 months for you to be able to afford this.... the big question,  do you REALLY need this?

Need support to help you manage your personal debts? click here.

 

Debt Relief Australia

68% of Aussies have claimed they have felt the sting from financial stress. With the economy dwindling over the last 3-5 years, Australian's have not had a very good run in the way of money.

Over 2 million people in Australia are living below the poverty line, the percentage of unemployment is at an all time high and the property market is seeing many new home owners fall into the red with negative equity on their homes.

With news like this is it any wonder 7 out of 10 Australians are struggling to keep their heads above water?

As the economy worsened, the personal debt management industry grew. Now instead of waiting until your bets are so bad you can do nothing but declare bankruptcy, there are a number of options to help you out of debt.

Debt Consolidation

Depending on your debts and how far behind you are, you might be able to use a form of Debt Consolidation to get back on top of things.

Debt Refinancing

If you are struggling to make repayments on a single loan, such as your mortgage, you could try to refinance through another lender.

Banks have dropped their interest rates considerably so you are likely to get a cheaper deal now than what you did a few years ago. You could also find a loan which allows you to redraw your repayments or other handy benefits you don't have with your current loan.

Credit Card Debts

If you have several cards all piling up and accumulating interest, you should consider transfering the balance onto a single card.

There are several companies offering great deals on balance transfers where you pay very little or no interest on balance transfers for a certain period of time.

Transfer your debt onto one of these cards and pay it down as much as possible withint the interest free period. This will only work if you stop using your cards.

Debt Consolidation Loan

If you are struggling with several debts, you could take out a consolidation loan. By doing this, you can pay out your existing loans and debts, leaving you with a single regular repayment and a single set of interest and fees.

A consolidation loan could save you considerable money by saving on interest, but you need to ensure the breakage fees won't outweigh the benefits.

Debtstroyer Agreement

If you are struggling with debt because of a dramatic change in circumstances, you might be able to use a Debtstroyer Agreement to get out of debt.

A Debtstroyer Agreement is an informal agreement, which means it isn't monitored by ITSA and therefore won't appear on your credit file.

A Debtstroyer Agreement will negotiate a new repayment schedule with your creditors which reflect terms that are better suited to your situation.

It might allow you to pay out the loan at a reduced rate over a certain period of time, freeze all interest and fees, allow you to pay out your debt in a reduced lump sum payment, or a combination of the above.

A Debt Agreement

A Debt Agreement is very similar to a Debtstroyer Agreement except it is managed by ITSA, Australia's governing insolvency body.

Because it is a formal agreement, it will appear on your credit file, however it's effects aren't as serious or intrusive as those assosiated with Bankruptcy

A Debt Agreement will get the creditors off your back and allow you to pay off your debt in peace.

Bankruptcy

Bankruptcy is the last option you should consider to get out of debt. It has lasting ramifications on your credit file as well as rules and obligations you must adhere to for the term of the bankruptcy.

However if you are suffering from very bad debt stress, you can not possibly see a way out and you have very few assets, declaring bankruptcy might be a good option for you.

For more information on the effects of bankruptcy, click here.

Need More Help?

If you are struggling with debts, the worst thing you can do is nothing. As you have just learned, there are several options available to help you out of debt. However the worse your debt gets, the more limited your options become.

For help with debt in your area, follow the links below.

Debt Relief in Sydney | Debt Relief in Melbourne | Debt Relief in Brisbane | Debt Relief in Perth | Debt Relief in Adelaide | Debt Relief in Darwin | Debt Relief in Canberra | Debt Relief in Hobart

For more information on Debt Relief Australia wide click here.

Debt Agreements - The Good, The Bad and The Ugly

Debt Agreements

Debt Agreements are a popular debt consolidation option in Australia. In the right situation, a Debt Agreement can act to cease recovery proceedings, freeze your interest and get you out of debt.

Debt Agreements are the second largest category of personal insolvency activity in Australia with 8,120 debtors entering into a Debt Agreement in 2011. While a Debt Agreement is designed to help you out of debt, not every Aussie walks away with a good taste in their mouth.

This blog is going to take a look at Debt Agreements to discuss the good, the bad and the ugly sides of this debt relief strategy.

Debt Agreements - The Good

A Debt Agreement can provide unmeasurable relief to people experiencing debt. It allows people to go to their creditors and negotiate new repayment terms which will give them more time and flexibility to repay their debt.

The key features of a Debt Agreement are that it will cease recovery proceedings, so the harassing phone calls and letters will stop. It will freeze interest and charges, effectively reducing the overall debt amount and negotiates a new repayment, so the debtor might end up paying only 60c of every dollar outstanding.

For a person in severe debt, these three features are the answer to their money troubles.

Not just anyone can apply for a Debt Agreement. You need to have at least $10,000 owing and comply with a number of other set criteria.

As you will read in this blog, Debt Agreements do still have ramifications you must be prepared to live with, but having a strict application criteria helps to ensure you can only take on a Debt Agreement if your debt is bad enough.

Debt Agreements - The Bad

Debt Agreements are formal agreements between a debtor and their creditors. A Debt Agreement is monitored by Australia's governing insolvency body, Insolvency Trustee Services Australia (ITSA).
Entering into a Debt Agreement is considered a form of bankruptcy and will therefore impose certain restrictions on your finances for the life of the agreement. For a full list of restrictions and obligations involved with all debt relief strategies click here.

Your Debt Agreement will be marked on your credit file for 7 years. It generally takes 3-4 years to pay it off, and once you have repaid your debt agreement your credit file will reflect that you have been discharged.

During the agreement (3-4 years) you will face restrictions to borrow money and purchase more assets, however unlike bankruptcy, you can continue to earn as much as you like and keep your assets, like your home and car.

Once you have repaid your agreement you are free to borrow money again. You may find it difficult securing finance through traditional banks, but Many non-conforming lenders won't flinch at your debt agreement. 

Debt Agreements - The Ugly

"I entered into a Debt Agreement and it ruined my credit file. I may as well have declared Bankruptcy, at least that way I wouldn't have had to repay any debt at all" - I found this feedback in an online financial forum. I thought it was appropriate for the ugly section of this page because this statement could spark a furious debate.

While many people would agree with this statement, it is my opinion that this is the perfect example of someone who's situation was not appropriate for a Debt Agreement.

By the time someone gets to the point of needing a debt agreement, their credit file is riddled with defaults and judgements anyway. It's not the debt agreement ruining a credit file, but rather the debt incurred before a Debt Agreement was signed. While those defaults and judgements will clear from your file after two years, you need a way of getting back on top of your finances so no more defaults occur - Enter the Debt Agreement.

For the right person, a Debt Agreement can have very little impact on someones life. In fact, there is an occasion which springs to mind of someone in a Debt Agreement being able to secure a business loan and buy a small business. Although this is rare, it is entirely possible to turn your finances around while you are in a Debt Agreement.

Bankruptcy on the other hand places restrictions on your income, assets, overseas travel and in some cases even your employment. Depending on your situation, Bankruptcy might be a better alternative for you than a Debt Agreement, as with the above statement.

Conclusion

A Debt Agreement could be your saving grace or it could be a living nightmare - it all depends on its suitability to you and your circumstances.
To ensure you are undertaking the right debt relief solution for your needs, you should consult an expert.
Personal Debt Management companies specialise in pairing a struggling client with a positive solution.

 

Your Say

Have you entered into a Debt Agreement? Are you considering it? How was your experience? Would you do anything differently? Leave your comments below. I would love to hear from you.