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7 steps to keeping the debt collectors at bay

We speak to debt specialists about the steps you ought to take to get interest repayments put on hold when you're in financial hardship.

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Australians struggling with debt are increasingly getting their interest charges and principal repayments put on hold, some even successfully for a year.

Despite stable employment and record low interest rates, the Reserve Bank of Australia recently noted that an increasing number of housing borrowers were falling behind in their mortgage repayments.

The share of banks’ housing loans in arrears is now back around the level reached in 2010, but overall remains well below the level reached in the early 1990s recession.

Kitty Thomas, Director of Debt Angel Solutions says banks in particular are more willing today to help their customers with repayments to avoid bad debts creeping onto their books.

But the challenge for many people is often knowing what help to ask for.

“Often when you call a creditor who you own money to such as a bank, they will put you through to their collections department and they will basically say, “There is little or nothing we can do to help, you need to pay now.

“But that is not altogether true. There is nearly always an option to go through to the hardship department, you just have to know what to say to them.

“I’ve had people with a $100,000 worth of unsecured debt who have been able to save roughly $10,000 or more in interest over a year by just communicating with their creditors and getting an arrangement in place that works for both parties.”

Aside from using a debt services company, there are also free financial counselling services such as National Debtline, which will often help waive and negotiate debt repayment plans for people in hardship.

Ms Thomas says most of the people she sees who are experiencing financial hardship are in that position because of a significant life event, and not just because of poor money management.

About two years ago, Tammy Jamison had close to $80,000 owing on two credit cards. She is currently working with Ms Thomas to pay off one card of $40,000, which has since had the interest and balance frozen.

“The hardship department at the bank she owes the money to has agreed to place around $1500 a month in interest and repayments on hold for the next six months to help her get back on top of her financial situation.

Jen Harwood is another woman who is rebuilding her life. A relationship breakdown left her with three credit cards, which eight months ago were “maxed out” at $50,000.

The 43-year old Mum of one is getting traction now that the interest rate is no longer around 20% and she is making steady inroads to clearing the debt faster than she ever thought possible.

Kitty suggests anyone wanting to get on top of their debt should stay in communication with the organisations that they owe money to and create a buffer of time to pay.
“You can’t just say oh I don’t feel like paying today, you must be in financial hardship and you must be able to prove that your income is less than your expenses.

For home loans and credit cards, it’s possible to get interest and principal repayments put on hold if you can demonstrate that you are in financial hardship.

Here’s some steps to follow:

1. Call the organisation and request to be connected with their financial hardship or collections/accounts department.

2. Ask for interest and repayments to be frozen for three months.

3. If the answer is no, ask for reduced interest and payments and/or less time.

4. Be prepared to discuss your personal financial situation and even show bank statements and supporting documents to prove your position.

5. Write down what you have arranged to pay and when. Be clear on the terms and what you have to do and diarise it so you don’t forget to keep the creditor updated

6. Honour all of the arrangements, particularly if you have put a minimum payment arrangement in place even if it only $10 a month. Not a day late or a dollar short

7. If you need an extension after the agreed period, ask for more time; just make sure you do so before the current arrangement expires. Be aware that they are likely to ask you to catch up on your arrears at a later date.

“Honest communication and being reasonable with your request is key. If you are unreasonable they will say no to everything,” says Ms Thomas.

This Financy article was first published on Yahoo Finance and has been republished here with permission.

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