Becoming financially independent and secure – budgeting, saving, debt and other key matters.

4e. What to do when your debts are out of control

Est. read time: 3 min

If you are having trouble managing your debts, this section contains some steps to help you make a payment plan and get back into control. It's important that you take action – whatever you do, don't do nothing.

Make a list of all of your debts


Make a list of all the money you owe including credit card debts. Include information on:

  • How much you owe;
  • What is the minimum monthly payment;
  • What is the interest rate;
  • Who do you owe it to; and
  • What does the debt relate to (e.g. mortgage payments, credit card debt, personal loan).

Talk to the people you owe money to


It is important to get in touch with your utilities provider, bank or credit card company and let them know you are experiencing difficulty managing your financial obligations. Many of these companies will have hardship officers who are people you can talk to when experiencing financial difficulty. It's best to speak to the hardship officer earlier rather than later, when the problems may have become bigger.

Hardship officers can:

  • Assess your situation;
  • Work out what help is available; and
  • Help you make a payment plan that works for you, including paying in installments and/or varying your repayment schedule.

If you own your home and are struggling with your mortgage payments, there are a number of options available including:

  • If the problem is short term, you can ask your bank for a hardship variation – a temporary reduction or delay in repayments;
  • In the longer term, you may be able to find a mortgage with cheaper fees or better rates, but be careful about hidden costs;
  • In some limited circumstances you can access your superannuation to help pay your mortgage – this should only be considered as a last resort;

More information on hardship support that is available can be found at 3f. Financial assistance for living costs.

When agreeing to a repayment plan, make sure it's one you can afford. There is no point agreeing to something you won't be able to keep up. There are a lot of organisations that offer a solution to your debt problems – it may be referred to as debt consolidation. However you need to be careful as the cost of these solutions can sometimes add to your existing debt.

More information about your options when you are struggling with your mortgage, how to talk to banks and pitfalls to avoid can be found at the MoneySmart website.

Prioritise your payments


Determine which of your obligations you want to pay first with any available money:

  • Some people like to pay some small bills off first which gives them a sense of achievement and momentum, as well as reducing the number of late fees incurred;
  • Others like to pay off the ones that have the most expensive interest rate, as this will save the most money;
  • Consider the consequences – if you do not meet your mortgage payments (or your agreed variation to your mortgage payments) you could lose your house.

Consider your expenses and apply any spare money to the problem


Apply any spare money you have to your debts. Extra money might come from:

  • a second job or some weekend overtime to earn a bit more;
  • windfalls like a tax return; and
  • selling something that you don't need or don't use any longer.

You should also review your expenses – consider which things you spend money on count as “needs” and which as “wants”. Eliminating, or significantly reducing the money spent on things you “want” (for example new clothes, a phone upgrade, an expensive meal) rather than “need” (food and water to maintain your health, a roof over your head, basic health care and hygiene needs) can contribute to reducing your debt.

These strategies can help to reduce the effect of compound interest (interest on interest) as well as chipping away at the amounts you owe.

Get some help 


Sorting out debt is difficult on your own. Discuss your situation with a trusted friend or family member you consider to be “good with money”, or get in touch with an independent financial counsellor. Financial Counsellors work for charitable organisations and offer free, confidential and independent advice to people experiencing financial hardship – more information on free financial counsellors Australia-wide is available at the MoneySmart website, or the Financial Counselling Association WA website for information specific to Western Australia.

The Consumer Credit Legal Service provides legal advice and assistance to people with issues arising out of their credit and debt related problems, including hardship variations.

Free financial counselling can also be accessed through the National Debt Helpline on 1800 007 007, or at its website.  You can also contact the Financial Counselling Network Emergency Relief and Food Access Service by calling 1800 979 777, 9am – 5pm Monday to Friday (excluding public holidays), or by emailing [email protected].  This service provides referrals for people in need of financial assistance including to financial counselling and the National Debt Helpline.

Prepare a budget


Once your debts are under control a budget can help you make sure you don't spend more than you earn. Consider building into this budget an emergency fund, so that in the event something unforeseen happens in the future you can avoid getting into expensive debt. See more information about preparing a budget at 4a. Budgeting.

You can find more information about managing debt at the MoneySmart website and the National Debt Helpline website.

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