ASIC tips for tackling debt
6 July 2021
The new financial year is upon us, which is a good time to take stock of your financial situation and in particular, your debt.
ASIC’s Warren Day recently joined ABC Melbourne Drive stand in host Beverley O’Connor with some tips for tackling debt and to discuss changes to debt management and credit repair firms, that will help consumers.
‘Owing money or falling behind on repayments can be stressful. The good news is there are steps you can take to relieve the financial pressure’ Warren says.
‘When it comes to getting on top of debt, the most important thing is to get started. Don’t bury your head in the sand, there is lots you can do to manage mounting bills and places to go for help.
‘The free National Debt Helpline, 1800 007 007, is a great place to start. The helpline is open Monday to Friday, 9:30am to 4:30pm’, Warren says.
ASIC’s Moneysmart’s tips for getting debt under control include:
- Know what you owe
Make a list of all your debts, showing:
- how much each debt is
- the minimum monthly repayment (if any)
Include credit cards, loan repayments, unpaid bills, fines and any other money you owe.
- Work out what you can afford to pay
List all the money you have coming in each month (income), such as salary or benefits. Then list all the money going out (debts and expenses), for things like food, rent or mortgage, credit cards, electricity, phone and transport.
Tally these up, then compare money in and money out.
Identify some expenses that you can cut or reduce. Be realistic — don't make it impossible to stick to.
- Prioritise your debts
Work out which debts are your priority debts and try to pay them first if you can. Priority debts include:
- rent or mortgage payments
- council rates and body corporate fees
- electricity, gas and water
- car repayments — if you need your car for work or essential travel
- Build a savings buffer
If you have any surplus funds, build an emergency fund. This will provide a financial safety net to cover any unexpected expenses or future changes to your income.
- Get help if you need it
Before you jump into anything, talk to a free, confidential financial counsellor. They can explain your options and help you make a plan.
Using debt management services
‘Some people struggling with debt may look to debt management or credit repair services’, Warren says.
‘Debt management firms advertise a range of services to help people that are having problems with their debts including that they can improve your credit worthiness and ‘fix’ or ‘clean’ your credit report.
‘As part of their service offering to indebted consumers, these entities often lodge complaints, for a fee, with financial firms directly at the internal dispute resolution stage and/or to an external dispute resolution scheme such as the Australian Financial Complaints Authority (AFCA).
‘Fees can be very high and the services can sometimes leave consumers already in financial difficulty worse off.
‘Until recently, these firms have been largely unregulated. However, from 1 July, debt management firms, including firms offering ‘credit repair’ services, will be required to be licensed to operate if they are providing services that relate to credit contracts. This means they must now be members of AFCA and if something goes wrong, consumers will be able to access this free and independent dispute resolution scheme.
‘Remember, you may be able to get a similar service for free so before engaging a debt management service, understand how much you will be charged and make sure the company is a member of AFCA’, Warren says.