At times the pressure from creditors and debt collectors will be uncomfortable and occasionally distressing. The ACCC and ASIC have a guideline which describes what they can and cannot do.

It is important that you do not avoid the issue that they are contacting you about and do the following:

• Make sure the debt they are contacting you about is yours.
• Keep a diary of all communication with the creditor including date, time, name of person contacting you and what was said.
• Do not make promises that you cannot keep, such as agreeing to make a payment and not doing it, or saying you will get back to them and then not doing so.
• Ask the creditor to only phone you at certain times or only contact you by mail.
• Working out your income and expenses that is; manage your income.
• Know your rights and responsibilities.

Remember they are only contacting you because you have missed some payments without you telling them or you have made a promise that you have not kept. The best way to avoid creditor harassment is to make contact with them first and to be honest about why you have missed payments and when you will be able to restart making them.

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There are several steps to take to understand your financial position.

Step 1: Work out your living expenses.
Step 2: List your debts, dividing them between secured debts and unsecured debts. Why [hover mouse here to find out]?
Step 3: Can all the debts [and the minimum payments] be met within your budget comfortably?
Step 4: If your debts can’t be met with your budget – what are your options?

Secured loans are loans that have an item such as a car or house attached to them. What this means is that if you miss a few payments, your creditor* can ask for that item back and then sell it to recover the money owed to them. If the sale price does not cover the amount owing to pay out the loan then you are liable for it.
 
Unsecured debts such as credit cards, personal loans, and store accounts do not have items attached to them, which means that the creditor* cannot take what has been bought with this debt away from you. This does not cancel your obligation to repay back the money you owe to a creditor*.
 
By dividing your debts into secured and unsecured you can make a decision which creditors* you need to be talking to as a matter of urgency – that is to stop repossession of your car or the sale of your house.
 
*When you owe money to someone (or a company) you are called a debtor and the person who has lent you the money or who you owe the money to is called a creditor.
• Seek the assistance of a Financial Counsellor
• Contact your bank and/or creditor
• Consider debt consolidation
• Consider Bankruptcy
• Consider Part IX Debt Agreement or Part X Personal Insolvency Agreement

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This is a tricky decision to make. Debt consolidation can appear really appealing now, but in some instances can actually put you in a worse position financially.

Things to Consider:

1. If you are rolling your credit card and unsecured Personal Loans into your Home Loan, ask yourself: "Can I manage the new payments or will I need to use my credit cards to pay for luxuries, bills, food, or any non-essential or essential item?". Debt Consolidation can sometimes result in eroding your equity/value.

2. Do not consolidate your debts without cancelling all of your credit cards, otherwise you may be tempted to use the cards again in the future.

3. Rolling all of your debts into one loan can save you money by reducing the monthly or fortnightly payments you are currently paying. But it can mean that you end up paying more interest as the debt is paid off over a longer period.

4. If a creditor has agreed to consolidate all of your debts, ring the other creditors to see if they will accept a lower amount than what you currently owe as “full and final payment”. They might accept 10% or more less to finalise a debt that has not had regular repayments. If some of your creditors give you a reduced pay out figure then that will be less you have to borrow with the new loan.

5. If you have no assets and a handful of debts, [e.g. multiple cards], then there are a variety of options to consider:

• Debt Consolidation
• Bankruptcy
• Non - payment
• Partial payment

This is the moment to seek the assistance of a Financial Counsellor.

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When bills have fallen past due, it does not take long before letters of demand start to arrive and the phone starts to ring. This creates an enormous amount of pressure and stress for even the most resilient person.

It is useful to understand how the court system works in respect to unpaid debt.

The above diagram gives an indication of debt recovery processes through the civil court. Remember, you cannot go to jail for unpaid debt (except in instances of fraud and other special circumstances).

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