It is all fine and well to be told that getting into debt is bad, and getting out of debt is good. On a surface level, sure, that can be true. However, it is not realistic to expect that debt will never occur, and that the difficulty to pay debt will never follow. In fact, we need to opt into a debt agreement of some description to populate our credit ratings. The problem with acquiring debt is that applications are approved based on current, and historical, financial information. Short of inventing a working crystal ball, there is no tried and true method of perfectly predicting someone’s (even our own) future financial position. And, credit cards and loans are typically years’ long responsibilities. So, if you have debt but are now experiencing a significant lack of financial stability regarding paying them off, how do you get out of debt without much money?
Audit your budget and spending
While watching your budget and spending seems like an obvious path while managing debt, we tend to only focus on conscious spending. When you audit your spending habits, you are going back through your credit card and debit card statements and taking stock of your real spending, including direct debits and ‘surprise’ bills (like energy and water - not an actual surprise, we know they’re coming, but we can ignore the inevitable when it’s not coming at us weekly).
Take out your vital costs like rent or mortgage and utility bills, then itemise the rest. Categorise your expenses into ‘vital bills’, ‘debts’, ‘food/living’ and ‘entertainment’ and add up the last month or so for each. Typically, whatever is left after bills, debt repayments and food is what will be left for entertainment. At times, this might even be nothing.
Negotiate debts
It might feel like you have very little power over your debts, but you might be surprised by what a little asking and comparing can do. Contact your creditors and negotiate where you reasonably can. That is, for credit cards ask about lower interest rates or transferring to a card that better suits your financial position. For loans or owed money, you can also ask to implement payment plans that require less per payment over a longer period of time, without interest penalties. It won’t always be the case, but typically if you keep in contact with creditors and are transparent about your position, they are more likely to remain accommodating. Being left in the dark without payment is how you find yourself in hotter water with your creditors than you need to be.
You can also negotiate debts within yourself. Consolidating your loans into one lower interest loan will mean mitigating risk of overpaying with high interest, and can streamline your debts and their payment.
Check your providers
Bills have to be paid. But, who you’re paying bills to can be up to you. Shop around and make sure you’re getting the best deal for your utilities provider/s, phone and internet. Compare your current contracts with competitors in the market and then call your provider. They may match your findings to ensure you stay with them, or you can cancel and move onto a provider that suits your financial capabilities.
In serious debt? Consult a professional.
Yes, professional advice comes with a cost. However, in the long run it can make the difference between bankruptcy or not. Consulting with our Shaw Gidley professional team means that you are getting the very best advice for your specific circumstances and working toward the most effective outcome. We understand the weight of mounting debts can feel overwhelming and unmanageable, which is why we have tried and true strategies for mapping your way to the most conducive solution.
Shaw Gidley are experts in restructuring, turnaround and insolvency and provide free initial advice on these matters. Please contact our offices on (02) 4908 4444 or (02) 6580 0400.
