I can't pay my debts
STEP 1: Get help now
Not being able to pay your loans, credit cards and bills can be embarrassing and stressful. Sometimes it feels easier to bury your head in the sand than confront the problem. And the longer you leave it, the harder it will get. Interest will keep getting added on and if a loan is secured against your car (or in the case of a mortgage, your home), the goods can be repossessed and sold.
Download our factsheets: Can't pay your debts? and Love and loans
How big is the problem?
As with most problems in life, the first step in working towards getting out of debt is to be honest with yourself about how big the problem is.
Make a list of everything you owe and who you owe it to. Use a budget planner to make sure you include all your ongoing bills and commitments. Then use a calendar or diary to figure out when each debt or expense falls due.
Now look at how much income you’ll earn over the same period of time. Remember that you’ll need money for things like food, transport and health. It’s also important to include items like family support or unpaid taxation and don’t forget big ticket once-a-year items like car rego and insurance. If your bills and expenses add up to more than your income, then you need to get financial help.
Try to assess whether you think this is a short-term or a long-term problem. If you realistically think the problem is short-term and you’ll be able to get back on track within a matter of weeks or months, it may just be a simple matter of negotiating short-term arrangements with the people you owe money to (your creditors). If you think the problem is more serious and long-term, you might need to take more formal steps to fix it.
Talk with your lenders
The most important thing is to take action quickly. For short-term problems, talk to your creditors about setting up a repayment plan. See trouble with debt for help on this.
Be completely honest with your creditors and realistic about how much you can afford to repay.
If you’re worried about falling behind with your home loan, talk with your lender. The four major banks (and other lenders like credit unions) have entered into an agreement with the Australian Government to help people who are having problems paying their home loan due to the current recession. Under the agreement, your bank may offer you options including:
- postponing your repayments for up to 12 months (with interest being added onto your loan)
- extending your loan period and reducing the amount of each payment
- making interest-only repayments for a short period of time
- dropping any fees or charges.
ASIC and Consumer Affairs Victoria have recently released a report examining how lenders and mortgage brokers react to borrowers who are experiencing financial distress. The report includes tips for borrowers: Helping home borrowers in financial hardship .
The companies you owe money to can sell your debt to a third party. Sometimes this can happen very quickly and make it difficult for you to negotiate a repayment plan or hardship variation (see below). This is another reason why it is important to take action quickly to negotiate with a creditor before the problem gets too big.
Cut back on your spending
You will never be able to work your way out of debt if you keep spending more than you earn. Bite the bullet and make cuts to your spending as quickly as possible. This will mean changing your habits and plans: cut back the amount you spend on things you don’t need like coffee, takeaway food, alcohol and cigarettes and stick to a budget.
At the same time, make sure you’re receiving all the income you are entitled to from your former employer (if you’ve been retrenched), Centrelink and the Family Assistance Office.
Watch out for ‘sexually transmitted debt’
Debt problems can often arise when relationships break down. This is sometimes referred to as ‘sexually transmitted debt’, though it can also apply to people in non-sexual relationships. To reduce the financial impact of a relationship breakdown on you, make sure your ex-partner doesn’t take money from your joint bank accounts, home loan redraw facilities or credit card accounts.
If your relationship breaks down, here are a few tips for what you can do to avoid catching sexually transmitted debt:
- set up a new transaction account in your name
- close joint accounts
- tell your lender to immediately stop any redraw facilities
- cancel any secondary credit or debit cards.
See loans involving family and friends and download our factsheet love and loans .
See a financial counsellor
If you find it difficult to talk to your creditors directly, if they are unhelpful or unwilling to help you, or if you think your money problems are long-term, get some free financial counselling.
Get emergency help
Seek emergency help immediately if you are out of cash and think you won’t be able to pay for necessities like your rent or mortgage and food.
Through the Commonwealth Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA), emergency relief is available from over 700 community organisations in the form of food, transport or chemist vouchers; assistance with rent/accommodation; part-payment of utility bills (electricity, gas); food parcels or clothing; budgeting assistance or referrals to other programs.
Major charities such as the Salvation Army 
and St Vincent d Paul have directories on their websites where you can find your nearest support or referral centre. For a comprehensive list of Australian charities visit www.auscharity.org .
More information
FIDO Website: Printed 09/07/2010
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