Dealing with liability and debt can be stressful especially as you plan out for the prospective economic impact of COVID-19. Numerous measures can be undertaken to manage debt, in this article we will discuss the steps that will assist you in effective debt management during this unprecedented time.
Proactively contact your lenders & DISCUSS your financial situation!
If you believe that you might fall behind schedule on payment for your mortgage, credit card, auto loan, student loan, or any other debt, simply contact your lender and discuss your current financial and employment situation. In these difficult times, many credit-card companies and lenders have introduced support programs to assist their customers during the pandemic. These programs include:
Granting temporary delay in payment
Adjusting payment via a long-term payment plan like work-out plans that permit debt repayment over a set period at a lower interest rate.
Nowadays, many lenders are experiencing high call volumes and assistance applications due to COVID-19. Thus, a time-effective method is to gather information from the lender’s website and lodge an online application to register and discuss financial hardship support programs.
Do not forget to discuss your employment and financial situation with your lender along with your capacity to pay alongside managing your other expenses and assets. Other topics to discuss with lenders include:
Support programs to assist people facing financial difficulty during COVID-19
Consequences of enrolling into a financial hardship support program
Overall payment following a plan and effect on the credit limit
Effect on the credit report
Alternate options if the support program is not helpful.
Following this, one should make a personal analysis to effectively manage debt during the COVID-19 period. Steps to efficient financial management are as follows:
Understand and combine your debt
To lay all cards on the table is always critical to analyzing any situation; you must combine all debts, as the first and most important step, to get a clear idea of your financial situation. This includes all credit card payments, loan repayment, unpaid bills, and other due costs.
Analyze your income & expenditure
Now that you have a clear idea of your total debt, you can put an effective debt management plan in place to repay your outstanding debts. The following steps will help you to work out how much you can afford to pay to cover your debts.
Compare money in and out: Analysing your monthly income and expenditure, you can identify areas where you need to pull-back your spending from. This way you can utilize your saved income to pay-back debt.
Maximize your entitlements and find savings: If you are affected by COVID-19 and your expenses seem to be more than your income, then it’s time to make choices. Critically analyze your:
1. needs (necessities one cannot live without) and
2. wants (things that can be foregone for some time).
And stop spending on things that you can live without for some time.
Prioritise your debt: Try to prioritize debt with an aim to pay-off the most important ones first like rent or mortgage payments, electricity, gas, and water, car repayments if any, council rates and body corporate fees. In case of having the ability to re-pay more debt, consider paying the ones with a higher interest rate.
If you are unable to manage these expenses, then you can apply for a financial hardship support program and avail one subjected to your eligibility.
Explore Support options
Considering the current situation, many institutions have introduced financial assistance programs to help people to deal with the impact of COVID-19.
Financial and banking institutions
Some banks have permitted customers to temporarily reschedule their mortgage repayment to be paid after a few months alongside charging no interest on credit card payments and refunding late payment fees.
Please note, although this assistance will provide debt relief for the short-term, you will continue to incur interest over your outstanding loan amount which can result in more interest payable over the term of the loan. It is always safe to doublecheck with your bank if the above offers apply to you.
Government response packages
The government has introduced many supporting schemes to assist individuals and families affected by COVID-19. These measures include:
Job keeper and Jobseeker payment
Temporary early release of superannuation
Increased entitlements for eligible individuals
One-off economic support payment
Reduction to pension minimum draw-down rates
Reduction to social security deeming rates
You can check for more details: here
Build savings fund for emergencies
One can never be prepared enough for events like COVID-19 but you can always keep yourself extra prepared through contingency planning so that you can get through such difficult emergency situations. The best approach to take is to plan and start saving. Having a surplus always provides a financial safety net that can be used in times of crisis.
Seek professional support
Managing debt is not everyone’s area of expertise, hence, seeking professional assistance can put your mind at ease resulting in faster debt pay-off.
Consider working with a credit counselor
Credit Counselling Agencies are generally NPOs that can assist people by advising on their money and debt situation. You should ideally discuss your employment status, financial situation, income & expenditure, and your financial goals prior to receiving a debt payment plan. Seeking counselor/ professional assistance can help you manage your debt better. A Non-profit credit Counsellor can assist you with the following:
Identifying ways to regulate your expenses
Assisting with different types of emergency hardship programs and the best working option considering your situation.
Suggesting to enrolling in a debt management plan where the Counselling agency will help with a consolidated debt payment plan and charge fees for the service.
Assist you to determine if exploring bankruptcy makes more sense.
Have you been contacted by a debt collector? You must know your rights!
If you have outstanding debt, you can work with debt collectors to identify a realistic debt repayment plan. However, you must know your rights: The trade practices act Australia states that a debt collector is not permitted to make use of unfair means in trying to collect the debt. If you do not agree to any debt claim, you may dispute that in writing or by calling and requesting information on any claims made.
You can read in detail at official website of the Australian Competition & Consumer Commission: by clicking here