If you sat and watched Ocean’s 8 thinking to yourself that stealing a $150 million Cartier necklace with a group of mates might be the easiest way to get yourself out of paying your bills then you may be in urgent need of addressing your financial situation.
One in six consumers is struggling under a mountain of debt, according to research by corporate regulator ASIC. Australians owe $45 billion in credit card debt, with around 1.9 million people struggling to repay their debt.
Jade from Victoria knows the situation only too well, “we had lots of personal loans and credit cards,” she says.
“We found since having a house loan people would throw money at us. We just kept getting more and more in debt and using one credit card to pay the other.
“I found out I was pregnant and knowing there would be another mouth to feed was what pushed us over the edge. I was scared and depressed, my husband and I argued a lot, it felt like everything was falling apart”
What happened to Jane is a frighteningly common scenario where debt can build up incrementally over years, with each year passing getting harder and harder to pay off the mounting debt.
An Aravanis study looked at credit card debt based on new enquiries during June 2018 and found that those seeking help for debt-related stress had the following credit card debt composition:
|Debt on credit cards||Percentage of people affected|
|Owe over $10,000||60%|
|Owe over $20,000||46%|
|Owe over $40,000||27%|
|Owe over $60,000||15%|
|Owe over $80,000||8%|
|Owe over $100,000||5%|
So, what are the solutions…without hatching a plot to steal the most expensive necklace in the world, that is?
Talking to John Papadopoulos, CPA and Manager at Aravanis, he says,
“When owing large amounts on your credit card and owning no real assets, individuals are often past the point of being able to restructure the debt through any kind of unsecured lending.
“The better option for dealing with large amounts of credit card debt through lending is to leverage against the property you already own. If you’ve got sufficient equity in your house and meet other lending criteria such as serviceability, then you may be able to restructure the credit cards into your mortgage.”
Someone else who recently went through this is Corey who is 51 years old and has two children and a shared custody arrangement with his ex-wife.
He had only one credit card to start with (a $10,000 limit) and over the next 12 years, his debt had ballooned to over $110,000.
Despite earning a good salary in the banking sector, his minimum monthly repayments were around $2,300. Corey managed to service the credit cards for a couple of years but after splitting with his wife, it all became too much.
He didn’t own any assets aside from a car under finance and some household contents. Coming from a finance background he knew there was nothing the banks could do to help beyond offering him hardship assistance for a few months.
Corey decided to file for bankruptcy. He cleared all of the credit card debt and his income contributions are now around $3,600 a year (just $300 a month).
Papadopoulos says, “Bankruptcy is often worth considering and although many think this is the ‘rock bottom’ option, for some it’s the best choice where suddenly the anonymous phone calls and threatening letters from creditors stop.
“As with Corey’ situation, repayments may need to be made to the bankrupt estate, but this is based on a government formula and intended to align with affordability. Additionally, while some assets are protected, others aren’t, so it’s important to get advice before you move forward with it.
“Once an individual has become bankrupt, the unsecured debt is wiped immediately. You generally spend 3 years being bankrupt and the listing on your credit report will be removed 2 years later (5 year listing on your credit file in total).
“The other option is a Debt Agreement, which is a binding arrangement between you and your creditors to repay your unsecured debts.
“Under a Debt Agreement, you agree to repay an amount to your creditors over a set period of time, usually from three to five years. The repayment amount is based on what you can reasonably afford to pay and the majority of your creditors in dollar value will need to agree to your proposal in order for this option to come into effect. As with bankruptcy, there will be a listing on your credit report for five years.
“However, if you’re so in over your head that repaying looks unlikely, bankruptcy may be the best option. But it really does depend on each individual’s situation.”
So, when it comes to dealing with an unmanageable debt situation, rethink the heist, go talk to a financial specialist or two and hatch a plan that’ll get you out of trouble without the risk of jail time.
*names changed to protect privacy