Loans and credit cards
If you are worried about keeping up with repayments on your loans (such as home or car loans) or on your credit card, don’t wait until you have fallen behind. Take action early, before a lender or credit card provider begins legal proceedings. If debt collectors are chasing you, ask a financial counsellor for advice.
When I got cancer, I was too sick to work. I thought I’d be able to go back to work once I was fixed up, so I kept using my credit card. That’s how I got caught in the credit trap.
Learn more about:
- Talk to your loan provider
- Apply for a hardship variation
- Get advice before refinancing
- Ask about credit card repayment protection
- Ask if you’re eligible for debt release
- External dispute resolution schemes
- Is the debt secured or unsecured?
- What to do if a creditor takes you to court
Let the organisation you owe money to (the creditor) know that you are experiencing financial hardship because you or a family member has cancer. The creditor may agree that you can:
- stop making repayments for a short time, such as 6–12 months
- make lower repayments for a short time
- change to interest-only repayments for a specified period
- pay by instalments
- reduce the total amount owing
- extend the term of the loan.
Making a payment arrangement as soon as possible can protect your credit rating. Your credit history and rating are recorded in a credit report produced by a credit reporting agency. If you apply for a loan in the future, the lender will usually ask your permission to check this credit report before approving the loan.
→ Contact the creditor to make a payment arrangement. If you come to an agreement, make sure you get it in writing, and check what interest and fees you’ll need to pay. Speak to a lawyer or financial counsellor if you need help understanding the documents. If you cannot reach an agreement, see Apply for a hardship variation.
A hardship variation is a formal process where you ask your credit provider to change the terms of your loan contract.
To seek a hardship variation, you’ll need to meet three criteria:
- your loan is for a personal purpose, not a business loan (home loans, personal loans and car loans usually qualify)
- you can reasonably repay the amounts agreed under a varied loan contract (maybe you are planning to go back to work after treatment, or you can pay off your debt over a longer term)
- you can’t make your repayments at the moment because of illness, unemployment or some other reasonable cause.
When you apply for a hardship variation, you can ask for reduced repayments or a complete hold on repayments until your situation has improved.
Your credit provider may ask you for further information about your finances to help them with the decision.
Work out what you can afford to pay before you talk to creditors. If you agree to an amount, it is difficult to go back and change it to a smaller amount, but you can always pay more if you find you can afford to. Remember the creditor is focused only on the amount you owe them. You may have other creditors to pay back as well.
Getting a hardship variation can protect your credit rating. If you get a variation agreement early and you are up to date with the lower repayments, the bank can’t record it on your credit report.
→ Write to or call your credit provider and explain that you are unable to meet your current repayments. You can also ask a financial counsellor to negotiate on your behalf. The credit provider is required by law to respond to your request in writing, usually within 21 days.
If your application is refused, the credit provider must give written reasons. If you think the reasons provided are unfair, you can complain via an external dispute resolution scheme.
Get advice before refinancing
You may be considering rolling all your loans into one to help you manage the repayments. This is called consolidating or refinancing. Before you refinance, it is important to:
- compare interest rates, fees and charges – make sure you will be paying less for your new loan
- check the company is licensed – some businesses advertising debt agreements to avoid bankruptcy take advantage of people in financial difficulty. They might offer refinancing or debt consolidation deals that can lead to more problems. They may charge very high establishment fees and interest rates, and make the loan term very short, even for a big loan. This is called predatory lending. To find out if a lender or broker is licensed, search the Australian Securities and Investments Commission (ASIC) professional register. If you think you have a loan with a predatory lender, it’s important to seek legal advice immediately (search for your nearest community legal centre at naclc.org.au)
- get independent advice from a financial planner or financial counsellor.
Ask about credit card repayment protection
When you applied for a credit card, you may have taken out credit card repayment protection. This will help cover repayments if you’re unable to work due to illness, permanent disability or death. There is usually a waiting period before you can make a claim.
There are conditions for using credit card repayment protection. Check your credit card statement or speak to your credit card provider to find out if these apply to you.
Ask if you’re eligible for debt release
In some special circumstances, your creditor can decide to write off (waive) your debt altogether. This is known as debt release on compassionate grounds and it is rare.
Debt release is usually an option only for people who have been on Centrelink benefits for a long time and who have no assets except household goods and tools of trade.
→ If you think you may be eligible, ask a financial counsellor or a community legal centre to help you apply to have your debts released. Debt release can affect your credit rating, so discuss this with them before proceeding.
External dispute resolution schemes
Almost all credit providers belong to an external dispute resolution (EDR) scheme. An EDR scheme allows you to have a dispute resolved by an independent party without any cost to you and without going to court.
The Australian Financial Complaints Authority (AFCA) provides EDR for all financial services in Australia. To check if your credit provider is a member, call AFCA on 1800 931 678 or visit them at afca.org.au.
For more details, visit the Australian Securities and Investments Commission consumer website at moneysmart.gov.au.
Is the debt secured or unsecured?
When you owe money, the debt may be secured or unsecured. This affects what action the lender (creditor) can take to get their money back if you stop making repayments on the loan.
This is a debt that is secured against a particular asset. When a bank lends you money, they may take “security” for the debt. This means that if you stop making repayments, the bank can take certain property (called the security property) and sell it to recover the amount you owe. A home mortgage or car loan is a secured debt.
With this type of debt, if you stop making repayments, there is no particular asset the creditor can take and sell. They must go to courtand get an order for your valuables to be taken and sold to pay off the debt. Credit cards and personal loans are usually unsecured debts.
What to do if a creditor takes you to court
Get professional advice straightaway
If you receive an official court document, such as a statement of claim, you will have only a limited time (usually 21 or 28 days) to file a formal response at court.
If you disagree with the claim, you need to lodge a defence. If you need legal help, you can search for your nearest community legal centre by postcode at naclc.org.au, or ask your financial counsellor to refer you to a lawyer.
Ask whether you can make a payment arrangement
If you do owe the amount in the claim but are not in a position to pay it, you can try to negotiate repayments with the creditor.
You may also have the right to get the statement of claim put on hold and bring the dispute to an external dispute resolution (EDR) scheme. This may give you an opportunity to make a payment arrangement. You should seek the advice of a financial counsellor or lawyer if you think the dispute could be referred to an EDR scheme, or if you are unsure.
Don’t ignore a statement of claim
If you don’t file a formal response or appear at the hearing, the creditor can get a default judgment against you. This means that the court will order you to pay the money to the creditor. If you don’t pay, the creditor may be able to take (repossess) some of your income or assets and sell them to get the money you owe.
Check that the statement of claim is genuine
Some debt collectors can give you documents that look like a statement of claim, but aren’t. This is fraud and is against the law. If you are not sure whether the statement of claim you have received is genuine, check with a lawyer.
Visit moneysmart.gov.au for more information.
Keith Manchester, Senior Legal Counsel, Financial Services Legal, AMP, NSW; Alka Bisen, Financial Counsellor and Project Coordinator – Financial Assistance Services, Cancer Council NSW; Patricia Dunn, Consumer; Emily Gibson, Social Worker, Mater Hospital Brisbane, QLD; Caitriona Nienaber, 13 11 20 Consultant, Cancer Council WA; Michelle Ruchin, Social Worker, Cancer Council SA; Robert Simon, Technical Services Manager, Tapln and Technical Strategy, AMP Advice, NSW; Krystyna Wisniewski, Consumer.
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