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5 Financial Options That Don't Include Consolidating Your Debt

Consolidating debt may not be your only option. This article explores other financial alternatives

5 Other Financial Options That Don't Include Consolidating Your Debt

Debt consolidation isn't for everyone. For many people, debt consolidation can lead to even more debt; easing the financial burden into one lump sum makes it easy to slip back into bad spending habits.

Additionally, if you have a small amount of debt, debt consolidation may not be necessary… yet. You can use the options listed below before ever considering debt consolidation to help manage your finances and pay off outstanding debt in a timely manner.

5 Alternatives to Debt Consolidation

  • Informal Arrangement: Before considering a larger debt consolidation, you may want to approach your creditors for an informal arrangement to help you quickly repay your debt. When you contact creditors and inform them of your financial state, many organizations will be happy to assist you in making reasonable repayments if they are aware of your financial difficulties. This is the first option that should be exhausted to open up the lines of communication with your creditors from the get-go.
  • Debt Agreement: A debt agreement is a legally binding agreement that you can enter into with your creditors. It will provide more protection than an informal debt repayment arrangement. For many people, a debt agreement is an inexpensive alternative to bankruptcy and even debt consolidation. It is ideal for people with a lower income that have little to no assets to use as collateral. According to Debt Relief Australia, a debt agreement is available for personal debt under $94,530.80 for individuals with a net income below $70,890.10.1
  • Personal Insolvency Agreement: A personal insolvency agreement is the next step up from a debt agreement for larger amounts of debt of more than $94,500. All unsecured debt can be combined into a formal repayment agreement to create a lower monthly payment so that you can pay back your debt. A personal insolvency agreement will bind all creditors into the agreement after they have accepted, allowing unpaid debt to be legally written off, including high interest rates. It will provide a fixed payment period that ranges from 3 to 5 years. This is ideal for individuals who want to avoid formal bankruptcy and protect their assets.
  • Hardship Programs: You may be considered to have financial hardship if you do not have the sufficient funds to pay your monthly bills. In Australia, banks and other lending institutions are required by law to offer flexible payment arrangements if you are in dire financial circumstances. Other service companies, including phone companies and insurance providers, may also offer financial hardship agreements for bill repayment based on specific circumstances.

Additionally, hardship programs are available for basic bills, including gas, electricity, and water. If you are unable to pay your utilities, you can contact your utility company directly to ask for flexible payment options or for information on assistance programs. The majority of phone and Internet service providers will also offer extensions on payment for financial emergencies or hardships.

  • Mortgage Refinancing: You may choose to refinance your mortgage if you are in debt and have a home mortgage to use as collateral. Mortgage refinancing will enable all debt repayments to be packaged into one monthly payment; in some cases, you may pay less per month than you do on your current monthly bills. This is a process similar to debt consolidation that uses your home mortgage as collateral in order to secure a lower monthly payment with potentially lower interest rates.

At the very least, you may want to consider a Home Loan Health Check to determine if you have a home loan with a competitive interest rates at the present moment. If not, you can use mortgage refinancing to lower your home loan interest rate to free up extra funds or for the purpose of paying off debt.

It is worthwhile to explore alternatives to debt consolidation since not everyone is eligible for a debt consolidation loan. You may be refused a debt consolidation loan if you have a poor credit history, or if you are unable to meet your current financial commitments.

You will most likely be ineligible for a debt consolidation loan based on the following factors:

  • Bad credit history
  • Reported bankruptcy within the past 10 years
  • Default on other loan repayments
  • Unemployment

In these cases, options like a debt agreement, a personal insolvency agreement, or even bankruptcy may be recommended to help you manage insurmountable debt.

If you are ineligible for debt consolidation or do not have a large enough debt to consider consolidation, start with the basics. Begin by contacting creditors for an informal arrangement to pay off your debt in a timely manner. For financial hardships that have put you behind on basic utilities and phone and Internet bills, you can also contact these companies directly. Utility providers and other services are required by law to provide you with flexible payment options in the case of debt or financial difficulty.

After these options have been exhausted, you can progress to more serious debt relief solutions, including a debt agreement or a personal insolvency agreement for large amounts of unsecured debt.