While loans are an essential part of our financial system, and we have standards in place to try to prevent irresponsible lending as much as possible, the reality is in a society as leveraged as ours, it’s inevitable that a few run into problems repaying their debts.
If you’re in a tight spot, the important thing is not to panic. While escalating debts can be overwhelming, there are several ways, formal and informal, to tackle them.
Speak to a financial counsellor
Struggling in silence is rarely a good move, but it’s particularly not advisable if you’re struggling with debts.
It’s a good idea to talk to a professional as quickly as possible once you realise you have run into problems.
Financial counsellors specialise in debt management, budgeting and financial planning. They deal with stressed debtors for a living, so they'll likely be able to assess your situation and come up with a strategy to move forward.
If you’re wondering how we expect you to pay for a financial counsellor when you’re already drowning in debts, the Department of Social Services offers a free, confidential service for people struggling with their personal finances.
❗Where to Get Debt Help
If repayments feel impossible, you don’t have to face it alone. These trusted non‑profit services offer free, confidential support tailored to different needs:
- National Debt Helpline — Face‑to‑face consults, visit ndh.org.au, or call 1800 007 007.
- Mob Strong Debt Helpline — Free legal advice for Aboriginal and Torres Strait Islander people. Call 1800 808 488.
- Small Business Debt Helpline — Support for struggling businesses, especially those hit by Covid‑19 or natural disasters. Call 1800 413 828.
- Rural Financial Counselling Service — Assistance for farmers and others in the agricultural industry facing money troubles.
The advice a financial counsellor will give you depends on your position.
They might simply come up with a debt management plan for you, prioritising more pressing debts and helping you budget to meet all your obligations. This might include debt consolidation or some of the other strategies we’ll outline below.
In other cases, they might recommend more formal steps, like contacting your lender's financial hardship department, or exploring personal insolvency options. Either way, an expert objective outsider is likely someone you’ll benefit from hearing from as soon as possible.
Get Savvy With Your Debts
If you’re juggling multiple loans, debt consolidation can simplify repayments and reduce costs. Instead of prioritising different creditors, you roll debts into one manageable repayment, but only if the numbers stack up.
Debt Consolidation Loan
Combine personal loans, credit cards, or other debts into a single debt consolidation loan. If the new rate is lower, you’ll save on interest. Always check fees and break costs to ensure real savings.
Remember: you still owe the same amount, and consolidation only works if you can repay. If debts are unmanageable, consider formal arrangements.
Try our handy personal loan repayment calculator to see how debt consolidation might make your monthly repayments more manageable.
Credit Card Balance Transfer
Move high‑interest credit card debt to a card with a low or 0% introductory rate (sometimes up to 36 months).
Fees are usually 1–2% but may be waived.
Be cautious though, because once the promo period ends, rates revert to much higher levels, and lenders may cap transfers or reject applications.
Consolidating Into Your Home Loan
If you own property, you can refinance your mortgage to pay off other debts. Home loans often have lower rates, but stretching debt over 25–30 years can mean thousands more in interest. Since the loan is secured against your home, missed repayments risk repossession and reduce equity — especially for new homeowners.
Debt management plans with your bank or lender
Before you go into formal debt repayment arrangements, it’s worth assessing your situation to see if there’s a better way out first. Formal debt arrangement or insolvency proceedings are a much more lengthy and serious affair, affecting your credit report, your ability to get credit, and even how you can travel.
There are a couple of popular strategies that can help some people who are struggling, and they involve talking to your lender.
Many large lenders including the major banks will have a financial hardship department. Anyone offering loan terms longer than 62 days must abide by the National Consumer Credit Protection Act of 2009, and this includes offering hardship arrangements.
If your financial circumstances change, it can be a good move to seek out this sort of assistance. There will typically be a specialised advisor who will work with you to try and find a solution. You might be able to renegotiate terms in some cases.
Financial hardship is typically used by those who have had external circumstances affect their ability to repay their loans.
The Commonwealth Bank for example say it asks for supporting documents, like a medical or employment separation certificate, to support your claim. If you have simply taken on more debt than you can handle, you might be less likely to find help here.
Formal insolvency steps
Many Australians, having exhausted debt management options, come to a point where they realise they have no way to repay what they owe. This situation isn’t as hopeless as it seems, but the important thing is to move quickly. The sooner you take action, the more effective a solution often will be. Under the 1966 bankruptcy act, those struggling have four options.
1. Temporary debt protection
This is a short‑term legal pause (21 days) where unsecured creditors can’t pursue repayment. A TDP gives you time to seek advice, negotiate, or explore insolvency options. Keep in mind, however, that this doesn’t cover child support, court fines, or secured debts, and repossession and bankruptcy proceedings can still occur.
2. Debt agreements
Sometimes, creditors will recognise that a person's financial position is precarious enough that there’s little chance of them recouping everything they are owed. They might agree to come to alternative arrangements, called debt agreements. This is a negotiated arrangement, often through an administrator, to repay part of what you owe or extend loan terms.
Debt agreements can help avoid bankruptcy, but will affect your credit score and appear on a public register. Creditors are more likely to negotiate if you act early.
3. Personal insolvency agreement
A more extreme debt agreement is for you to be declared personally insolvent. This means a trustee takes control of your property and negotiates repayment terms with creditors, sometimes requiring asset sales.
These agreements are permanent on public record and can impact employability and credit history, but they are generally considered less severe than bankruptcy.
4. Bankruptcy
Bankruptcy is a legal term that formally declares that a person is incapable of paying their debt. It can be both voluntary or court ordered.
As with insolvencies, a trustee is appointed who takes control of all the assets of the bankrupt individual. They also will manage any income that the person brings in. The bankruptcy period lasts for three years and one day.
A formal bankruptcy absolves you of most debts after the bankruptcy period is up. Once you have been declared bankrupt, creditors typically are not able to pursue further payment. However, a bankruptcy is recorded permanently, and is likely to effect your future employment and credit history.
The Bankruptcy Act 1966 also makes it an offence to travel overseas or do any act in preparation for overseas travel (such as purchase flights) without first obtaining their trustee’s consent.
Facing Debt and Insolvency
Debt troubles come with varying degrees of severity. For some, a short consultation with a financial counsellor will be enough to sort things out, but each year thousands of Australians find themselves in need of a declaration of personal insolvency or bankruptcy.
Anyone struggling should take initiative as soon as possible, be it contacting their lender's financial support department, or asking family members for a helping hand. Every state and territory also has free financial counsellors whose job it is to help people struggling to repay their debts.
Financial problems can cause real world harm, to your mental and physical health. It’s important to take action as soon as you can to try to avoid insolvency or bankruptcy, but even more important to have perspective about the whole thing.
Worst case scenario, after three years of bankruptcy, you effectively can have a fresh start. Your credit history will be impacted, but there’s no reason why you can’t slowly rebuild your reputation, and become financially responsible.
First published in June 2019
