For some this debt becomes unmanageable and it seems almost daily they are being hounded to make payments. If this is you then you need to get help ASAP. There are solutions available to help you but the longer you try to do it alone the harder it will become.
Like everything in life, debt comes in different forms so there not a one type suits all solution. Refinancing your home loan may be a solution (if you put into place strategies outlined below) but, for some, this may add to their debt problem.
Below are some options that may suit you. However, the first step you should take is to contact us to discuss your individual situation and then an individual plan can drawn up.
1) Refinance your home loan and consolidate debts
Your home loan tends to have the lowest interest rate out of all of your debts. This is why many refinance, roll their debts into their home loan and start again. For some this is an excellent solution and can provide the peace of mind they may not have experienced in a long time.
It is how you handle the future repayments on your new home loan that will determine your success. Let’s consider this, your personal loan was for 5 years (but with an interest rate of 18%) and now you are rolling it into your 30 year mortgage (with an interest rate of 6.5%). Yes the interest rate is lower but if you take 30 years to pay off the personal loan debt you will pay more in the end.
A good strategy is to make the consolidated debts a separate split to your home loan. Then, whenever possible, make extra repayments to pay off this split ASAP and ensure you don’t pay more in the long run.
There are some, though, where refinancing is not an option or the cost to do so will be too high. If the equity in your current home has not risen and/or your initial loan was already at an LVR of 95% then refinancing will not be available to you. We can assess this for you with the resources we now have available (at no cost to you).
2) Roll credit card debt into a low interest card
Many lenders now have credit cards with a very low introductory offer (say 1% for 12 months) and often waive the first year annual card fee for new customers. This is an excellent option for some but you have to do your research.
Don’t just look at the initial low interest rate. Also look at the regular rate your balance will roll into at the end of the introductory period. If this is higher than your current credit card then you may find yourself in trouble.
Also, if you have been behind in repayments (or you are in arrears) then a new lender will not approve your application for this loan rate.
If you are successful with your application, make extra repayments as often as possible and don’t use this new card to build up more debt. The best option is to chop your credit card up (or store securely away) and get a debit card instead.
3) Debt Consolidation Loans
Many lenders have realised the importance of debt consolidation for their customers so now offer loans specifically for this. Before signing up for a debt consolidation loan it is important to weigh up all of the costs and ensure you will save money through this process.
A debt consolidation loan offers an interest rate typically lower than most personal loans and credit cards. Therefore, by rolling all of your debts into this loan you should save money overall.
Please consider the life of the loan left on your current debts to the life of the new debt consolidation loan. If your personal loan (for example) only had one year left and you roll it into a new 5 year loan you may end up paying more in the long run.
4) Part IX Debt agreement
A debt agreement is a binding agreement under Part IX of the Bankruptcy Act 1966 between a debtor and their creditors where creditors agree to accept a sum of money which the debtor can afford.
A debt agreement is an alternative to bankruptcy and will assist with unmanageable debt. No assets will be lost with this process. An agreement is made between the debtor and the creditor as to what payments will be made to clear the debt. The amount, naturally, has to be realistic.
Prior to drawing up a debt agreement you must carefully consider what you can afford to pay off and what amount would be realistically accepted by the creditor.
Capital Funding Group are able to provide the services of a Debt Agreement administration and can lodge your application with the ITSA (Insolvency and Trustee Service of Australia). Please contact us ASAP if you feel this may be an option for you.
NB: Part IX debt agreements are only available to persons with low levels of debt, few assets and low incomes. A person will not be entitled to make a Part IX debt agreement if either their unsecured debt or divisible property is over a set limit, their taxable income exceeds a threshold or if at any time in the previous ten years that person has been declared bankrupt or entered into a previous debt agreement. Please contact us to discuss this further.
5) Part X Debt Agreement
This is a formal agreement to pay off your debts with creditors. You must first appoint a trustee to take over your property and finances. For this reason, it is vital that we assess your situation first to ensure there are no other options available to you.
A qualified trustee or a registered solicitor must handle a Part X Debt Agreement. An agreement will be drawn up and 75% of all of your creditors must agree to this before it is will put into place.
The advantage for creditors is usually related to the fact that the likely return under a Part X proposal will exceed the likely return under a bankruptcy scenario (last available option), and the costs of a Court process that would be incurred in a bankruptcy scenario can be avoided. The process of obtaining a Part X personal insolvency agreement involves the creditors being able to assess, with the assistance of the trustee, whether it is more viable for them to proceed with the Part X agreement or proceed with bankruptcy.
If we feel a Part X Debt Agreement is your only option we will refer you to companies that will be able to assist you.
If you feel your need assistance with your debt then call or email Capital Funding Group for a confidential chat about your situation.
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