Dealing with debt

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Dealing with debt

Most people will go into debt at some point in their lives, from the smallest credit card debt to large mortgages over a house. It can be easy to lose track or fall behind on repayments. When this happens you may find yourself in a cycle where you are struggling to keep up and feeling like your debt is spiralling out of control.

At AFSA, we help people who are in extreme financial distress. Bankruptcy and other personal insolvency options are available, however we encourage you to seek help first. The earlier you seek help with your debt, the more informed you’ll be about your options and the better chance you’ll have to avoid formal insolvency options.

Free financial help

You can get help from a free financial counsellor by contacting the National Debt Helpline on 1800 007 007. Financial counsellors offer free, independent and confidential services to discuss your situation and help you get back on track. The National Debt Helpline website also has step by step guides and useful information on how to deal with specific types of debts, such as housing, tax debt or Centrelink debt. For more information on financial counsellors and other support services see Where to find help.

Separating with debt: a guide to your legal options is a free guide available on the Attorney-General's Departments website, with practical information and options to assist separating couples to proactively manage debts in the context of a relationship breakdown.

Steps to help manage your debt

Find out how much debt you have

The biggest step for a lot of people is often to find out the exact amount of debt they have. Knowing exactly how much you owe is a very important part of tackling the problem.

To add up your debts, you’ll need to get your most recent statements from all your lenders (e.g. bank, mortgage provider, store cards, etc). Financial counsellors can help you understand how to read these statements if you’re not sure about the terminology.

Set up a budget

Budgeting is a powerful tool that can help you take charge of your financial future. It helps manage your money so you can cover the essentials and have enough left over to save. It can help you understand where your money goes, what you can afford and makes sure debts are paid.

It can give you peace of mind that you can handle an unexpected expense. If you can find extra savings in your budget, you could pay more off your mortgage, credit cards or other debts.

There are lots of budgeting tools and apps available for you to help start and stick to a budget. An example is ASIC’s budget planner.

Understand interest rates

There are different types of interest rates available, whether they are attached to your credit card, personal or home loan. Understanding how these interest rates work is important to making sure you understand how much your repayments will be, and if you can afford them if they increase in the future. There are lots of options when considering a loan, such as fixed vs. variable interest rates, balance-transfers and overdrafts. It can be challenging to understand what all of these different terms mean.

See the MoneySmart website for more information on the different types of interest rates for:

Small differences between interest rates can add up to substantial amounts over time, so comparing different providers before you commit can help you get the best deal.

Using comparison websites can help to shop around for different providers, but there are some limitations to keep in mind when using these websites. For example, not all websites will show you all lenders on the market, and may show you sponsored results before others. For more information see using comparison websites.

Negotiate with your creditors

Talk with your creditors

If you are having difficulty making your repayments, or you’re facing an unexpected situation (such as loss of employment, relationship breakdown or illness) talk to your credit provider early.

Talking or negotiating with your creditors can seem daunting, but taking action straight away can help get you back on track. Your creditors may be willing to:

  • give you more time to pay your debs
  • give you a lower interest rate
  • charge you fewer penalties.


Taking action quickly will help a small problem from turning into a big one.

Many providers have hardship programs that are designed to help support you through moments like these.

Some of these options may be legally enforceable and you may wish to seek your own independent advice before making a decision.

Hardship programs

If you’ve spoken with your creditors and haven’t been able to come to any arrangements, you may be able to access a hardship program. Both lenders and debt collectors are required by law to consider hardship variation requests if you are experiencing financial hardship. The types of hardship request you can make varies depending on the type of service the provider offers – e.g. they differ between electricity and phone providers.

Tips when requesting a hardship variation

First work out what you can afford to pay. There is no point agreeing to an amount that you can’t afford.

Contact your lender by phone or in writing and ask for the team that helps customers in financial hardship.

Some of the options you could discuss with your lender:

  • extending your loan period, so you make smaller repayments over more time
  • temporarily stop your repayments for an agreed period
  • both extending your loan period and stopping your repayments for an agreed period.

Keep a record of all the discussions you’ve have with your creditor, such as date, time, name of the person who helped you and the details you agreed on. If you find you can't stick to the new arrangement, tell your credit provider straight away or seek further assistance from a financial counsellor.

ASIC’s MoneySmart website has detailed information about how to request a hardship variation including a sample letter you can send to your provider.

If you can’t agree, you have rights to dispute it

If you’re in debt and can’t come to a solution with your creditor, you have a right to start a dispute resolution process. If your lender has refused your hardship application, they must give reasons. If you’re not satisfied with their response you can lodge a complaint with the organisation’s internal complaints section.

If you and your creditor still can’t agree, you can lodge a dispute (for free) with your credit provider's external dispute resolution (EDR) scheme. The Financial services EDR scheme for credit providers and debt collectors is the Australian Financial Complaints Authority (AFCA). You can call them on 1800 931 678. If your creditor is a telecommunications, energy or another type of service provider, they may have a different EDR scheme.

In the event you do lodge a complaint with AFCA and / or are awarded compensation, it's important that all parties are aware of recent developments concerning AFCA and compensation in bankruptcy matters. Please refer to Statement: Outcome of the Official Trustee in Bankruptcy v Kent [2023] FCA 1211. For further information please contact the AFSA Service Centre on 1300 364 785

Dealing with debt collectors

If you fall behind on repayments, your lender may use a debt collector to help recover the debt you owe. Your debts can also be sold onto a debt collector, so that they now own the debt. Debt collectors may contact you by phone, letter, email, social media or in person. But there are restrictions on how and when a debt collector can contact you, and you must be treated in a fair and reasonable way. It is against the law for debt collectors to threaten, intimidate or harass you.

It is best to not try to avoid debt collectors, but instead be upfront and honest about your situation and your ability to afford repayments. You may be able to negotiate more time to pay, lower interest rates or apply for a hardship variation, depending on your circumstances.

A free financial counsellor may be able to speak to your creditors and debt collectors on your behalf, as well as provide information on the best option for managing your debt.

For more information see MoneySmart’s Dealing with debt collectors.

Debt consolidation

Debt consolidation is where you roll all of your existing debts into one new debt. It can help reduce the interest and fees you’re paying on multiple loans and simplify the repayments. If you are struggling to manage your debts, it may sound like a good idea to pay someone to roll them all into one consolidated loan, however there are lots of things to be aware of with debt consolidation, so make sure you understand what you’re getting into before committing to anything.

Potential pitfalls include having to make this a secured debt (e.g. tied to an asset such as your car or house) or you may end up paying more than you otherwise would have on your existing loans.

Speaking to a free financial counsellor can help you make an informed decision about the best way to proceed and if debt consolidation is the best option for you.

Going to court for a debt

If you don’t pay your debts, you may receive a notice to appear in court (such as a summons, statement of claim or liquidated claim). Creditors may take this step to try and recover the money owed to them. If the matter goes to court and the court decides you do owe the money, the court could issue you with an order to pay your creditor, known as a judgment debt. Once you have a judgment debt against you, creditors may be able to enforce the debt through various ways including:

  • requesting an order to garnish your wages (when a court issues an order requiring your employer to withhold a certain amount of your pay and send it directly to the person or institution to whom you owe money, until your debt is paid off).
  • apply for a warrant to seize some of your assets
  • in some circumstances, start legal proceedings to make you bankrupt.

If you’ve received a court summons, or you already have a judgment debt, you should seek legal advice as soon as possible. The laws are different across Australian states and territories.

Find out more information about court judgments on the National Debt Helpline website.