Settlement Guide

How to handle pandemic debt

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A year into the COVID-19 pandemic, many Australians are trapped in a vicious cycle of increasing debt while relying on multiple personal loans to cover their household bills and living costs. So, how do you live in debt and proactively manage your financial commitments?

Every day, the National Debt Helpline’s financial counsellor, Sarah Brown-Shaw, speaks to people struggling to pay the bills or those worried about making their repayment.

Key Points

  • Keeping the communication channels open with your financial institution is the best way towards alienating your debt.
  • Prioritise repaying debts tied to your assets and the ones with the highest interest rate.
  • Around 850 financial counsellors nationwide offer free, confidential and legal support and their help is available in languages other than English.

She says for many families, the economic response to the COVID-19 pandemic was to fall behind in their financial commitments, and now they are facing much higher debt.

"People haven’t made any payments, but the banks have continued to add on interests, so today people owe more than they did 12 months ago, which is quite a concern," she says.

If you have difficulty paying your bills and repayments on your loans when they are due, making a plan and stopping debt from getting bigger, is a good idea. 

Have a plan

Economist and a member of the Economic Society of Australia and Uruguay, Sydney Demaría suggests starting by making a list of your debts and interest rates and comparing it with what you earn and spend.

When handling multiple debts, he advises prioritising repaying debts tied to your assets and the ones with the highest interest rate because of the effect of compound interest.

Understand that interest compound never goes away, and the amount you owe always grows.

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Keep the communication channels open

A passionate advocate for financial inclusion, fairness and financial resilience for Aboriginal and Torres Strait Islander people, Lynda Edwards works at not-for-profit organisation Financial Counselling Australia.

She says keeping the communication channels open with your financial institution is the best way towards alienating your debt, but she also points out you need to know how to talk to them.

Always use the words ‘I am in financial hardship’. Then obviously there would be a different type of conversation around what capacity you have to pay.

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Debt Consolidation

If juggling numerous interest rates and repayment schedules is too stressful, Sydney Demaría says a financial product called debt consolidation allows you to bring all your smaller loans together into one.

The benefit of this is, the interest rate that that will command is usually lower than the average of all the other seven, and it will feel like starting something afresh.

Rolling multiple debts into a single payment at a lower interest rate may seem attractive. However, Mr Demaría warns debt consolidation companies are in the business of making money, and they have their own interest at heart.

The National Debt Helpline’s financial counsellor Sarah Brown-Shaw agrees.

Anyone who is thinking about debt consolidation, please speak to a free financial counsellor first because that may actually not be your best option.

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Seek professional support

Lynda Edwards suggests seeking help from a financial counsellor as soon as you think you will have problems meeting repayments. 

Ring the National Debt Helpline, and that’s 1800 007 007. The financial counsellor on that hotline will be able to refer you to appropriate services that are nearby.

If English is not your first language and you have difficulties understanding, then financial counsellors at the National Debt Helpline like Sarah Brown-Shaw can use interpreting services provided by the Department of Home Affairs.

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There are about 850 financial counsellors nationwide that can advocate on your behalf if you can’t pay your energy bills, internet or phone bills, mortgage, credit cards, or payday loans. 

For free, confidential financial and legal advice that can help you negotiate repayment options and improve your financial situation, contact the National Debt Helpline on 1800 007 007.

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