If you are worried about keeping up with repayments on your loans (such as home or car loans) or credit cards, 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 contacting you, ask a financial counsellor for advice.
Learn more about:
- Talking to your loan provider
- Applying for a hardship variation
- How to resolve credit disputes out of court
- Getting advice before refinancing
- Asking about credit card repayment protection
- Asking if you’re eligible for debt release
- Checking if the debt is secured or unsecured
- What to do if a creditor takes you to court
Talk to your loan provider
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 how long you have to pay the loan (the loan term).
Making a payment arrangement as soon as possible can protect your credit rating. If you apply for a loan in the future, the lender will usually check your credit report before approving the loan.
Contact the creditor to make a payment arrangement. Make sure you get any agreement in writing, and check what interest and fees you will 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 credit report details your credit history and rating, including every time you have applied for credit or not made a repayment on time (defaulted). It is held by a credit reporting agency. Your credit rating helps a lender assess the risk of lending to you.
Apply for a hardship variation
If you are finding it hard to repay loans and credit cards you can apply for a hardship variation. This is a formal process where you ask your credit provider to change the terms of your loan contract. To get a hardship variation, you will need to meet three criteria:
- the loan is for a personal reason, not a business loan (this usually means home loans, personal loans and car loans)
- 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 applying for a hardship variation, you can ask for reduced repayments or a complete hold on repayments until your situation has improved. The credit provider will usually still charge interest on the loan if repayments are reduced or on hold. This means that the loan balance may increase. Check with your creditor about the terms that apply to you.
Your credit provider may ask you for more 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 usually 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 may protect your credit rating if you get a variation agreement early and you stay up to date with the lower repayments. Check with your lender what will happen to your credit report.
If you don’t think you will be able to reasonably repay the loan, you may need to consider other options. These may include a debt release on compassionate grounds, selling assets or – as a last resort – bankruptcy.
- Call or write to 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. The credit provider must give written reasons if they refuse your application. If you think the reasons provided are unfair, you can complain via an external dispute resolution scheme (see below).
How to resolve credit disputes out of court
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 and for more details about making a complaint, call AFCA on 1800 931 678.
Get advice before refinancing
Rolling all your loans into one can make it easier to manage the repayments. This is called debt consolidation 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 and check whether your current provider will charge any exit or penalty fees.
- Check the time frame – some providers offer debt consolidation with competitive interest rates for a short time only (e.g. 6 or 12 months).
- Check the company is licensed – to find out if a lender or broker is licensed, search the Australian Securities and Investments Commission (ASIC) professional register.
- Avoid predatory lenders – some businesses take advantage of people in financial difficulty by offering options 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. 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 clcs.org.au).
- Get independent advice – from a financial adviser 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.
Try to avoid using credit cards to pay your bills and other living expenses. Credit cards often charge high rates of interest, which means that if you only make the minimum payment each month, the amount you owe will keep getting bigger.
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.
Vincent
Ask if you’re eligible for debt release
In some limited 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. It is usually an option only for people who have been on Centrelink benefits for a long time and 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 find out what this means before going ahead.
Check if the debt is secured or unsecured
When you owe money, the debt may be secured or unsecured. The type of debt affects what action the lender (creditor) can take to get their money back if you stop making repayments.
Secured debt – This is a debt that is backed 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 get back the amount you owe. A home mortgage or car loan is a secured debt.
Unsecured debt – With this type of debt, if you stop making repayments, there is no particular asset the creditor can take and sell. If you can’t pay the debt, you may be able to agree on a hardship variation or get help from AFCA to resolve the dispute. Otherwise, the creditor must go to court and get an order for you to pay the debt. In some instances, the creditor may be able to take some of your income or assets to repay what you owe. Learn more about going to court below. 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.
A statement of claim sets out what your creditor thinks you owe them. If you disagree with the claim, you need to lodge a defence with the court.
If you need legal help, you can find your nearest community legal centre at clcs.org.au or ask your financial counsellor to refer you to a lawyer.
Ask whether you can make a payment arrangement – If you agree you owe the amount in the claim but are not in a position to pay it, you can try to negotiate a payment plan 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 set up a payment arrangement with your creditor.
Seek advice from 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 judgement against you. This means that the court will order you to pay the money owed 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 may give you documents that look like a statement of claim but haven’t actually been issued by a court. 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.
Call the National Debt Helpline on 1800 007 007.
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Rania Tannous, Head of Legal, Corporate, Legal and Governance, AMP; Patricia Troll, Senior Legal Counsel, AMP Financial Services Legal, Legal and Governance, AMP; Lynette Brailey, Program Coordinator, Financial Assistance Service, Cancer Council NSW; Stephen Bray, Financial Planner, FM Financial, TAS; Angela Daly, Senior Social Worker, Cancer Services, The Adem Crosby Centre, Sunshine Coast Hospital and Health Service, QLD; Sandra Hodge, Consumer; Sandi Johnson, Consumer; Antony Mitchell, Financial Counsellor, Financial Counselling Program, Cancer Council VIC; Lucy Pollerd, Social Worker, Peter MacCallum Cancer Centre, VIC; Heather Richards, Consumer; Deb Roffe, 13 11 20 Consultant, Cancer Council SA.
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