Between the fiscal years 2017-2018 and 2019-2020, Australian households saw their average debt swell from $190,000 to $204,000—a startling jump of over 7% in merely two years. Unpacking the reasons behind this rise could be fascinating, but a more crucial concern is how to effectively manage this growing debt.
Hefty debts, climbing interest rates, and a spiralling cost of living have left many Australians seeking assistance from Debt Management (DM) firms. These private companies offer a helping hand through:
- Consolidation of multiple debts into a single, manageable payment.
- Crafting realistic plans for debt repayment.
- Holding negotiations with creditors to:
- Ease the financial pressures on households.
- Fulfill creditors’ demands for timely repayments.
In some instances, DM companies might settle your debts within a set limit, and you repay them according to a singular, negotiated loan agreement—a glimmer of hope that suggests reins might be taken back over your financial life.
However, as the adage goes, “There’s no such thing as a free lunch,” and this holds true here. When considering the assistance of a DM company, it’s important to note potential downsides:
- Your credit score may take a hit as closing or restructuring accounts can be seen unfavourably on your credit history.
- Additional fees and charges apply. Remember, DM services are businesses that often charge setup and monthly handling fees based on your debt, which can exacerbate your financial strain.
- Many DM plans are rigid. If your income is variable or unexpected financial demands occur, adhering strictly to payment plans can become a source of stress.
Before deciding on a DM service, it’s worthwhile to explore some DIY financial management strategies:
Budgeting
A practical approach to budgeting involves three steps:
- Tally your income against expenditures, which should include:
- Owing amounts.
- Minimum monthly payments.
- Due dates on debts.
- Divide expenses into essentials and non-essentials. Reflect on areas where you can reduce your spending, like buying that second cup of coffee each day.
- Redirect the funds you save to your debts, focusing first on those with higher interest rates, such as credit cards.
Tips on cutting daily expenditure can be found on the Moneysmart website provided by the government.
Negotiating
Most financial institutions and utility providers would rather negotiate than have clients default. Thus, they’re often open to adjusting payment terms and may even offer assistance programs. Initiating communication early and with an open stance can be the key to favourable outcomes.
Government Assistance
The Australian Government offers numerous financial assistance schemes for various situations, from crises to ongoing living costs. While there are specific eligibility requirements, detailed information is accessible via the MyGov website.
Financial Counselling
Financial counsellors help clarify your monetary position and plan a way out of hardship. Some community centres provide free or low-cost financial literacy programs aimed at educating individuals on financial management and debt reduction.
Your financial standing is personal, hence, any strategy for debt management and wealth creation should be tailored to your unique situation. If uncertainty prevails, consider consulting a licensed financial planner for guidance.
The key to overcoming financial difficulty lies in proactivity. Taking charge is not just about paying down debt—it’s about engaging in the wealth creation process. This process encompasses smart financial planning, consistent savings, investing with diversification in mind, and continuously updating your investment strategy in accordance with your risk appetite and financial goals. Creating wealth is a committed, long-term endeavour that, with discipline and an openness to learning, can pave the way towards financial freedom and security.
Take the decisive step today. Act with purpose, and you will set yourself on the path to fiscal recovery and a prosperous future.
