Home Wealth Personal Finance 5 steps to break the debt cycle

5 steps to break the debt cycle

Knowing your rights can help.

Senior Digital Journalist, Your Money

Many households will have started the new year with a nasty financial hangover thanks to the holiday spending season.

That follows a record-breaking December where Australians racked up a record $30 billion in credit card debt alone.

If you’re one of these people, what should you do to avoid carrying and accumulating even more of it?

Dominique Grubisa, a lawyer and CEO of DG Institue, shared her top tips for getting out of debt efficiently and effectively.

1. Re-finance

If you have equity in a property, one easy solution is to re-finance your credit card or personal loan debt into your mortgage so that you’re paying a lower interest rate.

“Obviously, you’re better off paying three or four per cent than 20 per cent on a credit card,” says Grubisa.

2. Manage your repayments

Can’t re-finance? Work out a plan and schedule your repayments so that the debt is being paid back on time each month.

Make sure that the right amount is being paid so that balance is actively going down.

3. Know your rights

Many people don’t realise that there are a number of legal obligations lenders must follow to help customers pay off debt if they’re unable to do so.

This includes allowing a customer to put the loan on hold for up to six months or varying their repayments to suit their circumstances.

“There are laws to protect consumers that give you lots of options, like the National Credit Code,” Grubisa explained.

“There’s a banking code of practice, so they can give you a holiday of up to six months and no charges and penalties can accrue in that time,”

“The system is there to help you, you just have to navigate your way through it.”

4. Negotiate

You may be able to negotiate a better deal with your lender that will enable you to shrink the size of your loan or access a lower interest rate.

Grubisa says the first person you speak to will likely urge you to accept a lower minimum repayment plan – don’t accept this without having looked at other solutions first.

“Everything is negotiable… lenders will negotiate so you can pay it off at cents on the dollar,” she says.

If a bank is unwilling to help, Grubisa says customers should lodge a complaint with the Australian Financial Complaints Authority.

“You can lodge a complaint online there and then your lender will actually come to you and talk to you,”

“We’ve had people negotiate $65,000 credit card debts down to $20,000. We had one lady with $70,000 pay it out with $3,900.”

5. Transfer your balance

Customers can transfer their balance to a lower or zero interest product so that repayments cover the lump sum, rather than the interest.

The caveat is that most zero interest cards revert to high interest after a certain period, potentially placing a customer in a worse position than before if they haven’t paid off the balance in full.

For more, watch the full interview above.

Read more: ‘Debt vultures’ to face Senate grilling
Read more: How to avoid a Christmas credit debt
Read more: Aussie consumers owe $903 million in ‘buy now pay later’ debts

Get more news, analysis and insights straight to your inbox!

By clicking subscribe, you accept our privacy policy.