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Caught in a debt trap? Here’s 8 things you can do

Image: Getty
Image: Getty

While rising house prices, low interest rates and sluggish wage growth make for somber headlines, the number of Australians declaring personal insolvency has actually slowed.

But, should rates rise further, we could see a turnaround, with Aussies battling high levels of debt.

Also read: 43 Aussie suburbs with the highest bankruptcy

Dominique Grubisa, the founder of wealth education institute, DG Institute, knows what that feels like. She battled extreme levels of debt as a result of the GFC and had to move back in with her parents along with her five kids and partner.

However, she turned it around and in 2017 and DG Institute earned $12 million.

Today, Grubisa argues the mainstream system pushes people to either honour contracts regardless of the pain they inflict or declare bankruptcy.

Also read: Is Australia headed for a wealth wipeout?

But there are other ways out of a debt hole. These are Grubisa’s top eight tips to manage debt.

1. Refinance

“Prior to refinancing consider talking to a credit provider, switching home loans, getting a credit card balance transfer or even selling the house,” Grubisa said.

“There are lots of alternative products to choose from if refinancing is considered your best solution.”

First, Aussies should analyse the terms and conditions associated with their current mortgage and calculate what’s needed to borrow for the new loan, then shop around for other loans, being sure to compare all the different upfront fees.

2. Manage credit card debt

Simply move to a zero interest balance transfer card.

“We’ve found that clients have paid out tens of thousands of dollars in debt within two years of doing this.”

3. Vary the loan

Borrowers should ask their lender to vary the loan for hardship – this is essentially re-negotiating the terms and conditions.

“In this instance, cite and refer to the Banking Code of Practice. You can effectively have zero payments – a total freeze for six to twelve months.”

Also read: 5 tips to cut the cost of your car rental

4. Use the National Credit Code

Grubisa said Aussies shouldn’t be nervous about using the National Credit Code to alter their loan.

“All default and penalty interest will cease and you can capitalise on liabilities or any outstanding payments,” she said.

“This could include adding them to the loan or changing the terms of the loan. For example this could be paying interest only from principle and interest or varying the terms of the loan such as lowering the monthly repayments.”

5. Apply to the Australian Financial Complaints Authority (AFCA)

By doing this, consumers can freeze repayments for up to 12 months, meeting with the lender for mediation.

6. Negotiate

It doesn’t hurt to do some negotiating, in order to pay out the debt for cents on the dollar.

“We’ve helped clients pay out at much lower figures, for example a lender recently accepted $11,000 for a $75,000 debt.”

Also read: Markets stage rebound to end Red October

7. Dispute

Grubisa said borrowers should dispute any assignment of debt as there is often “massive wriggle room”.

“You can even demand proof of ownership of debt, which more often than not, they cannot provide, meaning enforcing the debt is no longer legally binding.”

8. Consider whether your debt is actually valid

After a prescribed period, the lender can’t pursue a debt, Grubisa noted.

“This means that the agreement or claim is no longer the subject of a legal action because the time limit imposed by the limitations act has been exceeded, and therefore is paid out. The lender cannot pursue you after six years and must write off the debt.”

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