What to do if you're in debt

People get into debt for lots of reasons:

• job loss
• getting sick
• relationship breakdown
• rising interest rates
• business failure
• living so close to the limit of your financial ability that one emergency purchase pushes you into debt
• borrowing more than you can afford to repay on loans, credit cards and store cards
• spending more than you can afford because of bad shopping habits or problem gambling
• taking out a big loan to pay for something you can't afford now such as house or car.

The important thing to remember is that if you are in debt, there are ways to get out of it again.

Take control of your debt

If your debt is out of control, talk to your lenders about the situation. Contact the credit card company, the department store, the finance house or the bank and explain your problem so you can work out a repayment plan.

Other ways to take control of your situation include:

• getting help from a financial counsellor
• finding ways to increase your income, like getting another job
• varying your loan repayments on hardship grounds
• consolidating your debts
• finding out about court instalment orders
• considering bankruptcy, but only as an absolute last resort.

Debt consolidation

People with a variety of debts attracting various rates of interest are usually encouraged to roll all debts into one loan. This is called 'debt consolidation.'

With debt consolidation, you can save on interest costs by taking out a personal loan at a lower rate of interest than your credit card(s) and make monthly repayments on this one single loan.

To make this option work, you have to maintain your current repayments. If your current repayments are $500 a month on your high-interest credit cards, maintain this same level of payment on your new all-in-one loan. Depending on the size of your debt, you could save hundreds or even thousands of dollars and take months or years off your repayments.

The Australian Government's MoneySmart website has more advice about debt consolidation options.

Problem gambling

Gambling can create financial, social and personal problems for some people and their families.

Problem gambling involves having a loss of control over how much time and money you spend on gambling. This can have a negative affect on your finances and other areas of your life, like relationships, your job, or your studies.

If you think you or someone you know may have a problem with gambling, the Victorian Responsible Gambling Service's Gambler's Help page, lists a range of advice and support, including a tool to find your nearest Gambling Help service. Gamblers Help services operate throughout Victoria and provide immediate telephone help, and individual, couple and family counselling and group support. 

Credit ratings

If you've had trouble making minimum repayments on a loan or credit card within the past five years, you've probably affected your credit rating. Your credit rating is recorded on what's called your 'credit report.' The Australian Government's MoneySmart website has some helpful information about credit reports, including how to go about getting a copy of your own credit report, and what to do if you don't think it's accurate.

Bankruptcy

Bankruptcy should only be considered:

• after seeking professional advice
• when all other options have been exhausted.

Bankruptcy may seem like an easy way to clear all your debts, but once you're declared bankrupt, it remains on record for the next seven years. This will affect you if you want to borrow money in the future.

For further information on the legalities of bankruptcy, visit: 

• Victoria Legal Aid
• Australian Financial Security Authority.

Where to get help with debt

The Australian Government's MoneySmart website has some good information about improving the way you manage money. It also has advice on finding a financial adviser.

You may also be eligible get receive help from Victoria Legal Aid.

Debt can place a lot of added pressure and strain on families and relationships. If you, or someone you care about is experiencing a hard time because of debt, get help through a counselling service like Lifeline by calling 13 11 14 or Kids Helpline on 1800 55 1800.

Links

MoneySmart - managing debts
Information to help you find the best way to deal with your debt.

National Debt Helpline
This helpline offers free financial management advice and a financial counselling service.

Victoria Legal Aid - bankruptcy
Legal information about bankruptcy.

Victorian Responsible Gambling Foundation
This Victorian Government site has facts and information about problem gambling and its associated issues and provides links and contact details for support and advice services.