One of the services that we obtain great enjoyment from is assisting clients with Debt Consolidation and Debt Elimination strategies. It’s an area where we can see immediate positive impacts in the daily lives of those we help.
Quite often many people end up in financial distress due to circumstances outside of their control and to be able to provide solutions that can immediately improve their financial position and take the stress out of their lives is immensely satisfying.
With this area of work everyone’s situation is different and everyone requires a specific strategy to solve their respective problems. It’s not just a case of refinancing a number of high interest rate debts into a lower interest rate facility, although if this is the best strategy then that’s what we’ll do.
When designing and implementing the strategy that’s going to improve your situation in the quickest manner, we take into account the following:
- Current income profile and job security
- Current business performance
- Current debt levels
- Current Asset values
- Recent conduct of all loans
- Current status of any loans and whether any legal action is pending
- Are there any outstanding Statutory debts such ATO or Social Security
- What other outstanding creditors there may be and the status of the relationship with those creditors
- The current health of your credit report
Once we have a complete understanding of your situation, we then set about designing a strategy which will use either one of or a combination of the following options:
- Loan restructuring
- Hardship applications
- Debt consolidation
- Debt negotiations
- Informal arrangements with Creditors
- Part IX arrangements
- Part X arrangements
Quite often we use a combination of these options to achieve the best outcome for you.
Case Studies & Solutions
Budgeting & Loan restructuring example
The clients came to us looking to refinance a number of credit cards, a residential mortgage and an investment loan as they were struggling to keep on top of all their payment commitments (15+) while working full time and running a growing family. This was resulting in a fortune in late fees and high interest charges. They enjoyed good job security and a reasonable income.
Prior to chatting with us, they had initially applied for hardship relief directly with their lender and were declined. They had been attempting to consolidate their credit cards online and in the process had damaged their credit rating. After reviewing their file it was apparent the client needed to sit down and establish a budget as they were consistently running short of cash and living beyond their income level. We assisted them with this process. We didn’t consider that a refinance was the best solution, as many of their cards were low interest transfer balances and their mortgage was competitive.
Once the budget was in place, we approached their lender and asked them to restructure their loans for a brief period of time, converting the payments from weekly to monthly and converting the residential mortgage from P & I to Interest Only, something that they had previously declined to do. Once this was approved, we then requested that all Credit Card providers move the payment date to the same date.
The clients were always entitled to handy tax refunds and with this job being in the late part of the financial year we immediately prepared a PAYG variation for the client, resulting in an immediate inflow of cash. Combined with the new budget and the lower mortgage repayments, they then set about clearing out specifically selected cards. Within 9 months, they had cleared all credit card debt in full and paid back in excess of $25,000.00.
Hardship application and budget
The client came to us in an attempt to refinance and consolidate a number of outstanding debts. These debts were incurred for medical reasons and had placed the clients under immense financial stress. There was no chance that they would have qualified for a refinance due to the amount of the debt, loan arrears and asset values.
After analysing the client’s situation we provided them with a number of options, one of which was a Part IX arrangement. The clients wanted to maintain their good credit history and attempt to repay all of their debt. We then targeted a number of specific lenders and submitted Hardship applications to these lenders who agreed to provide the client with repayment moratoriums while they implemented their strategy.
The client then used this moratorium to rebuild a cash buffer and direct surplus funds to the repayment of their highest interest debt. We also assisted the client in establishing a budget and ensuring that they stuck to the budget during the hardship period. The client managed to pay down approximately $20,000.00 in debt during their moratorium period which resulted in their monthly payments reducing to a level that allowed them to survive without financial stress and continue to pay down debt. Once the moratorium period was finalised, we then negotiated with one of the main lenders to revert their loan back to interest only, which allowed the client to continue to work through their targeted debt.
Sometimes, a person’s financial situation can be improved simply through the preparation of a budget. It’s amazing how much our clients are able to save once they prepare a budget. It shows them where they’re spending and perhaps wasting money and where easy savings can be made. Most importantly, it stops them from being surprised by large expenses which tend to push them to-wards using rubbish debt such as credit cards.
A budget doesn’t mean big sacrifices to your lifestyle; in fact, if it allows you to quickly rid yourself of bad debt then it can lead to a much better lifestyle than what you may be currently enjoying. A budget is great for the following reasons if you’re struggling financially:
- Allows you to obtain an understanding of your cash flow and to prepare for future expenses.
- Allows you to design a strategy to rebuild a cash buffer and ensure that you can meet your ongoing commitments in a timely manner.
- Allows us to ascertain what your best options are in respect to reducing debt.
- Allows you to accelerate your debt reduction strategy.
On top of budgeting, it’s also important to set up systems that will ensure that you follow your budget. For instance, if you’re not that confident with your money management skills or are just too busy, it’s important to ensure you only take what you’ve budgeted for each month. If your budget indicates that you can afford to spend ex amount per week on food then you need to set this money aside and ensure that you only spend x amount. It’s the same with personal spending.
We can assist you with the preparation of your budget if you consider that you need some assistance. Depending upon which level of service you require we can then assist you with the management of your budget until you clear your outstanding debts or until they’re reduced to an agreed upon level. This allows you to get on with your daily life and leave the minor details to us.
Loan restructuring involves changing the structure of your existing loan facility to provide more immediate benefits to you that may assist in solving some of your problems. Loan restructuring may be as simple as changing your loan from Principal & Interest to Interest Only and may be achieved without any issues.
Often a restructure may not be so straight forward and may require negotiations with your current lender. The restructure may prove to be only a temporary measure, however it is usually enough to allow you to improve your situation significantly.
If your lender is not forthcoming, it may then require a complete refinance to another lender who is prepared to provide a more accommodating loan structure.
Contact Us now if you would like to talk further about eliminating debt from your life.
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