Struggling With Debt Repayments? Your Options
Falling behind on debt repayments is stressful, and it is more common than many people think. A job loss, reduced hours, illness or rising living costs can quickly turn manageable repayments into a struggle. The most important thing to know is that you have options, and that acting early makes almost every option work better.
Step 1: Do not ignore the problem
It is natural to want to avoid letters and calls when money is tight, but ignoring the problem usually makes it worse. Missed payments can lead to extra charges and can be recorded on your credit record. Facing the numbers is the first step to getting back in control.
Step 2: List everything you owe
Write down every debt, including:
- Who you owe
- The outstanding balance
- The monthly instalment
- The due date
- Whether you are up to date or in arrears
Include personal loans, short-term loans, credit and store cards, overdrafts, vehicle finance and accounts such as cellphone contracts.
Step 3: Work out your budget
Next, list your take-home pay and your essential living expenses. Our budget check shows you how. The amount left after essentials is what you can realistically put towards debt each month. If it is less than the total of your instalments, you know you need a plan.
Step 4: Prioritise essential payments
Some payments protect your home, your income and your family's basic needs. Make sure you keep up with essentials such as rent or your bond, electricity and water, and food. Then look at how to manage the rest.
Step 5: Talk to your creditors early
Contact each creditor before you miss a payment, or as soon as possible if you already have. Explain what has changed and what you can afford. Many credit providers will discuss options such as:
- A temporary payment arrangement
- A new repayment date
- A reduced instalment for a period
Get any arrangement confirmed in writing, and only agree to amounts you can keep up with. If you have a loan with us, contact us as soon as you know there may be a problem.
Step 6: Avoid borrowing to repay debt
Taking a new loan to pay an existing one can feel like a solution, but it usually adds fees and interest and makes the overall problem bigger. If you are considering a new loan just to keep up with others, stop and look at the options in this guide first. Our guide on how to repay a short-term loan on time has more practical tips.
Step 7: Consider debt counselling
If you cannot keep up with your debt even after cutting expenses and talking to creditors, you may be over-indebted. The National Credit Act provides for debt counselling, also known as debt review, through debt counsellors registered with the National Credit Regulator.
In general terms, a debt counsellor assesses your income, expenses and debts and, if you are over-indebted, works on a restructured repayment plan with your credit providers. While you are under debt review you generally cannot take on new credit. It is a formal process with its own costs and obligations, so ask the debt counsellor to explain them before you apply, and make sure the counsellor is registered with the NCR. Our overview of your rights as a borrower gives more background.
Where else to find help
You do not have to work through this alone. Besides your credit providers and registered debt counsellors, the National Credit Regulator publishes information for consumers about credit and debt counselling. If a creditor's conduct worries you, keep records of all correspondence; you can raise a complaint with the credit provider first and then with the regulator or the relevant ombud. Talking to someone you trust about the situation can also make it easier to take the first step.
Step 8: Protect your credit record going forward
Once you are back on track:
- Keep up with every arrangement you make
- Check your credit report; you can get it free once a year from each credit bureau
- Dispute any information that is incorrect
- Start a small emergency fund so that the next surprise does not mean new debt; see how to build an emergency fund
Our guide on improving your credit score explains how good habits rebuild your record over time.
Watch out for debt scams
People in financial difficulty are often targeted by scammers who promise to make debt disappear or offer guaranteed loans for an upfront fee. Read how to spot loan scams before you deal with anyone who contacts you out of the blue.
The bottom line
Debt problems rarely fix themselves, but they can be solved. List what you owe, protect your essentials, talk to your creditors early and get registered help if you need it. If you are thinking about a short-term loan, make sure it fits your budget first, and read about how our loans work before you apply.
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