How to Get Out of Debt?

9 October 2015

With more and more Australians struggling with debt, from mortgages to car loans to credit cards, the question of how best to get out of debt is becoming increasingly important. Being in debt can be a strain not only on your financial wellbeing but also your personal and family wellbeing. If you find yourself in debt it is best to deal with the problem right away rather than falling further into debt. Here is a simple starter’s run-down of some of the ways to get out of debt.

Budgeting

If you want to become debt free, budgeting is the first and most effective method you should consider. It is a simple fact that people fall into debt when they are living beyond their means. If you owe more on a monthly basis than you are earning you will fall further and further into to debt. Before the problem becomes too great you should sit down and work out a reasonable budget for yourself and your family.

Doing a budget is easy, simply work out your expenditure for the month, i.e. groceries, school fees, mortgage repayments, credit card repayments etc. and balance it against your household earnings. Once you have done this you might identify areas where you can save money and cut household costs. For example you might realise that your pay TV subscription is an unnecessary expense and can be cancelled. By doing this the money you save can be redirected toward paying off your debts. If your debt problem has not yet gotten out of control budgeting is the most effective method to get out of debt.

Debt Consolidation Loan

Another method of getting out of debt is applying for a debt consolidation loan. These loans work by consolidating all of your credit cards and unsecured personal loans into a single loan. This is an effective method of dealing with debt because it allows you to repay your debts with a single loan subject to a single interest rate. Instead of making multiple credit card payments to different banks and being charged different interest rates, you make a single monthly repayment.

If you are disciplined and don’t get yourself into further debt these are a great way to become debt free. However if your debt situation has gotten out of control it is possible you may not qualify for one of these loans as financial institutions are unlikely to approve you for a debt consolidation loan if you have a bad credit record or a history of late payments.

Debt Agreement

Debt agreement has over the last decade grown to become one of the most common forms of debt relief in Australia. For many people their debt problem gets to a point in which they cannot get themselves out of debt without seeking help. If you have reached this point a debt agreement may be the best option to deal with you debt problems.

A debt agreement is a legally binding arrangement between you and your creditors in which your creditors agree to accept a sum of money based upon what you can afford and your capacity to pay. Debt agreement is designed for people who have become insolvent, in other words they cannot afford to pay all their debts as and when they fall due.

Under a debt agreement you can repay your creditors an amount based on affordability. Should the debt agreement be accepted by your creditors the accruing interest on all your unsecured debts will be frozen. This will allow you to make a single ongoing payment to all of your creditors and actually begin to repay your debt without merely paying off the interest. Additionally your creditors will no longer be able to contact you directly and will have to go through your debt agreement administrator, this means the constant collection calls will stop. A debt agreement is a good way to wipe the slate clean and start to get out of debt.

Bankruptcy

Bankruptcy should only be considered as a last resort and has serious consequences. However in some cases in which the problem has gotten completely out of hand, bankruptcy may be the best option. If you feel that you are unable to pay your debt and you cannot come to a satisfactory arrangement with your creditors then bankruptcy may be your best option. It is also possible that your creditors may bankrupt you if you owe $5,000 or more.

One of the key problems to consider under bankruptcy is what happens to your assets. When you become a bankrupt some of your assets can be retained because they are protected property and some may be recovered by your trustee and sold.

Whatever option you think is best, it is always a good idea to seek assistance with your debt problems. Making an informed decision based upon your unique situation will help ensure you get out of debt and remain debt free.

Fox Symes is the largest provider of debt solutions to individuals and businesses in Australia. Fox Symes helps over 100,000 Australians each year resolve their debt and take financial control.

If you are in debt and want to know more about the solutions available to you contact us on 1300 361 204.