The level of personal debt of Australian individuals is now higher than ever previously. People are borrowing more and are paying more for housing, mortgages. rental etc. Certainly the Reserve Bank of Australia has recognised this as a problem when it made a decision to raise the Australian interest rates by another 25 points. Continued compulsive spending by consumers, coupled with other inflationary pressures brought on by the high price of petrol will only make it harder for ordinary Australians to make ends meet.
The ratio of personal debt to income in Australia is one of the highest in the world – higher even than America and the UK. For every $100 we earn, we owe $130. Credit and charge cards account for $26 billion of the debt.
As at the end of the March 2006 quarter, Australian Bankruptcy statistics indicate that the number of bankruptcies is 23.68% up on the March quarter of 2005. A similar trend was observed for Debt Agreements – with an increase in Debt agreements signed as at the end of March 2006 quarter by 21.49% over the March quarter in 2005.
More About Debt Agreements
In 1996 the Australian Bankruptcy Legislation was used to introduce Debt Agreements. Debt Agreements represent a cheaper alternative to bankruptcy and are especially appealing to Aussies on a low income. Debt Agreements can be used to settle outstanding debts without needing to pay for and use the services of an Administrator.
Debt Agreements are legally binding proposals made to the applicant’s creditors in order to finalise their debts. Creditors are asked to accept a reduced amount of payment to settle the outstanding debt or agree to proposed payment terms that are different to those in the original loan agreement. Creditor’s main incentive to agree to a debt agreement is the understanding that if they were to refuse, the applicant may proceed to Bankruptcy, a process through which they would most likely see less of their money returned.
The Australian Bankruptcy Legislation places certain rules of eligibility re Debt Agreements. Amongst the tests applied are Applicants level of income and previous history of bankruptcy.
Debt Agreements in Australia are regulated by ITSA.
More about ITSA
The Insolvency and Trustee Service Australia (ITSA) is a government agency formed specifically for the administration and regulation of the personal insolvency system in Australia. ITSA operates the bankruptcy registry, where debtors petitions are lodged, debt agreement proposals are processed and public records on insolvency are maintained, and acts as a trustee in bankruptcy. Official Receivers exercise powers to assist trustees to obtain information and recover property. ITSA investigates possible offences under the Bankruptcy Act and prepares briefs of evidence for prosecution. ITSA also has the responsibility for providing Australians with information about bankruptcy and its alternatives.
More about Bankruptcy
If you are unable to meet your monthly repayment obligations. If your debts are mounting up and you are spending your day avoiding harassing calls from your creditors. If you are spending sleepless nights worrying about your finances - the Bankruptcy option may begin to look attractive. However before you make any decisions to proceed in this direction you really do need to understand all the rules and consequences of bankruptcy.
Bankruptcy is a legal status offering protection from further action by creditors whose debts are `provable in bankruptcy'. A person can chose to file bankruptcy of their own accord or a creditor may also petition for a person's bankruptcy in court. Deciding to declare bankruptcy has very serious implications for your credit rating, your ability to borrow money, and places a serious of legal and financial restrictions on the bankrupt.
Before making a decision to declare bankruptcy it is worthwhile investigating what other options are available to you. Debt Consolidation Loans is one potential option.
More About Debt Consolidation Loans
Debt Consolidation Loans allow the borrower to consolidate their existing unsecured loans into either their mortgage or a low rate personal loan. You may be struggling to make monthly repayments on all your credit cards, store cards and other loans. Grouping several unsecured loans into a single personal loan may save you money and make the required repayment more affordable. The interest rates charged on you credit cards may be significantly higher than the rates charged on a personal loan. Naturally there are exceptions. The interest rate you are able to negotiate on a personal loan will depend on your personal circumstances including your credit history and income position.
If you are a homeowner who is experiencing debt problems, consolidation of your outstanding debts into your mortgage may be the answer. Irrespective of whether your bills are from a failed business venture, unpaid credit cards, personal loans and the like, you may be able to use the equity in your home to resolve your financial problems and still keep your home. This is a great formula which has been used to help many people over the years.
Debt Consolidation Loans for homeowners are available in Australia irrespective of their credit rating and are a great debt resolution tool.
Making a Wise Choice
Certainly, your best option will depend on your individual circumstances. However there are some general points that should be considered:
(i) Debt Consolidation Loans do not do any damage to your existing credit history and therefore if you are able to consolidate your outstanding debts into a single loan, that is always your best option. If you have a property with available equity, in most cases consolidating your debts into your home loan will be cheaper than consolidating them into a personal loan.
(ii) Where Debt Consolidation Loan is not an option, you may wish to consider a Debt Agreement with your creditors. Before deciding to proceed in this direction you will need to confirm that you in fact qualify for a Debt Agreement. While a signed Debt Agreement is reflected on your credit history it is a better option than Bankruptcy.
(iii) Declaring Bankruptcy should always be seen as your last option and only explored when all other alternatives have been considered.
If you would like to learn more about
debt consolidation or debt consolidation loan available to Australians
please visit www.webdeal.com.au for a
wealth of information on this subject.
Maya Pavlovski holds a Bachelor of Commerce Degree from Melbourne University and is a qualified CPA.
