The 2017-18 household income and wealth data by the Australia Bureau of Statistics (ABC) revealed that up to 72.8 percent of the households had debt. About 28 percent had debt three or more times their income. Australia’s debt to income ratio is the highest in the world, about 200 percent. This might be the much-needed shot in the arm for people down under to reflect on their debt and repayments.
Australia was fortunate to have high-income households hold the most debt, with most, pretty able to service their debt. But this picture changed recently as thousands of people came under pressure from a declining property market, caused by what international analysts called an “overdue, overblown property bubble“.
It is now clear, that when losing income, debt repayments can really be a struggle for most people. Some people can cut back on spending heavily while others are likely to default on the loans. When all factors seem unfavorable, debt negotiation is an option on the table.
DebtCo, a company that helps businesses and individuals in Australia to overcome debt problems has an in-depth knowledge of the Australian market. DebtCo sounded the alarm recently when it said “Thousands of Australians now struggle to keep up debt repayments. Most of these are hardworking people who feel that the system which was once thought to be bubble proof, is finally failing them. This includes small business owners. We at DebtCo help many people to avoid bankruptcy and insolvency through proactive debt negotiation – and in many cases, we succeed at getting creditors to write off their debt completely.” Roland Bleyer, CEO and founder of DebtCo.
But how exactly does debt negotiation in Australia work? Read on to learn more!
Understanding Debt Negotiation
As the name suggests, debt negotiation is basically the process of working out an alternative arrangement for paying your debt with your creditor. You can negotiate yourself or you can hire an agency to do it on your behalf.
The aim is to reach a mutual arrangement that allows you to pay the agreed amount to avoid the consequences of defaulting. In some cases, the creditor can agree to take a lower amount than the owed amount if you agree to pay a lump sum.
How It Works
If you’re struggling to keep up with your debt obligations, debt negotiation helps you to reach a mutually benefiting arrangement with your creditor. Every case is unique, so your specific arrangement will depend on your financial situation.
For example, you can pay a lower amount than what you owe if you agree to pay in a lump sum. This is a great option if you want to do away with the debt obligation once and for all. It also allows you to avoid the stress of living with debt.
Most creditors will accept a lower amount, particularly when your business risks liquation or you lose your main income source. In this case, it’s better for them to recoup some of the debt you owe than losing it all.
You can also negotiate with lenders to pause your monthly repayments. This is a great option if you’re experiencing a situation that impacts your normal income flow, but you’re still confident to meet your debt obligation once your problem resolves.
Another option is to ask the creditor to extend your loan period. For example, if you had a 2-year repayment period, you can ask for 3 years or more. In this case, your monthly repayment amount will be reduced, relieving you the burden of making larger installments.
Bear in mind that debt negotiation only works if your creditor is willing to accept the revised arrangement for your debt.
Benefits of Debt Negotiation
Debt negotiation offers several advantages for both the borrower and creditor.
As a borrower, a well-planned negotiation can help you settle your debt, eliminating the stress of dealing with debts. Typically, the last thing you want is to keep receiving constant phone calls from creditors.
It also saves you money if you opt to pay in one lump sum. If your creditor sympathizes with your case, they can be open to reducing your debt to a manageable amount. The lower they get, the more you save.
Filing bankruptcy is not something you can wish for, but that’s where you can head to if you fail to pay your debts. With debt negotiation, it’s possible to take that option off the table and secure your financial survival.
If you had used collateral in securing the loan, negotiating your debts can also help to retain your assets. Ideally, it’s easy to place collateral when borrowing a loan, but it’s not easy to part way with an asset you struggled to own.
Essential Tips to Consider:
In some cases, you might need the help of a specialist debt negotiator to talk to creditors on your behalf. You have this option – and in many cases, the cost of this is offset by the benefits, especially in cases where debt is written off completely. The costs vary, and most negotiators charge a percentage of the reduction in the debt. If you land a good negotiator, their services is genuinely like money in the bank!
If you want to take the case head-on by yourself, there several essential tips you can leverage.
First, always reach out to creditors the moment you realize things might be difficult for you. Don’t waint for them to call you or serve you with overdue notices. Make the first step to reach out and most creditors might be willing to listen to you.
Australia requires all creditors to adhere to consumer credit laws. So, if your creditor follows these laws, you can apply for a credit hardship variation. This can allow you to get more flexible terms for repayment.
Also, it’s sensible to get help in managing your finances if you’re struggling to do so. Some people struggle with debts not because they lack money, but due to poor money management.
Life events that result in losing your income source(s) can really turn things upside down when you have debts. Creditors can really pile pressure on you when you’re late on payments. But it doesn’t have to get there.
With debt negotiation, you might just get the much-need relief during your difficult moments. Creditors are human beings, too. They are open to listening to you if you share your situation with them. You can either choose to work with a negotiator to reduce the stress and emotion associated with this – or do it by yourself which is least preferred by many.