What to do when financial hardship hits home!
While many of us worry about our finances, some people are under extreme financial hardship and stress – to the point of not being able to manage their everyday living expenses or pay their debts. Often, this is the result of changing circumstances such as job loss, divorce, or major health issues – all of which can impact a person’s ability to meet their financial commitments.
In such circumstances, it is always advisable to contact your creditors (people you owe money to) and explain your situation, and, if appropriate, arrange a financial hardship variation to help lighten the burden.
Financial hardship variation
A financial hardship variation with a lender will often include the following provisions within a set period of time:
- Increase the length of your loan term – allowing lower repayments
- Make interest-only payments for an agreed period
- Postpone repayments for an agreed period
- Make principle-only payments for an agreed period with interest frozen
While helpful, financial hardship variations should only be considered as a short-term option to get through temporary difficulties. It is not a long-term solution, as debt will still need to be repaid, regardless of whether the difficulties are resolved or not.
Beyond short-term hardship
What should you do if your short-term hardship continues beyond 3 months, with creditors continuously chasing you for growing debts you are unable to pay?
Here are some debt relief options to consider – the suitability of which will depend on your personal and financial circumstances.
- Debt agreement – This is a legal agreement with your creditors to pay a reduced amount of your debt at a rate you can afford to repay. As well as reducing your total debt (often by 20-40%), it has the benefit of freezing all interest and fees, stopping all creditor calls, having only one regular repayment for all debts, allowing you to keep your assets, and creates a time frame for an affordable pathway out of debt (read about debt agreements here)
- Debt consolidation or refinancing – Always check your options for a more suitable deal on your home loan. Or if you can consolidate several loans into one. Note: if you have a bad credit history, lenders may hesitate to lend you more money or take on more of your debts
- Early withdrawal of superannuation – Under certain conditions of severe financial hardship, it is possible to withdraw up to $10,000 of super in one year
- Declare bankruptcy – While this option can clear all current debts, it is normally a last resort which will cost you your assets along with a range of other negative consequences
The next step
At Safe Debt Management, we’re all about making your life better. So, when it comes to helping people in financial hardship, the most important first step is to seek help from a debt specialist to evaluate your personal and financial situation and choose the debt relief solution that works best for you.
So take that first step towards a debt-free future – make a safe choice and apply for a FREE no-obligation debt assessment today. What have you got to lose – but your debts!