The amount of stigma around being in debt, and having trouble paying off debt, means that we can often feel really ashamed and embarrassed to talk about it.
ING found that almost half of Australians feel anxious about debt, and two-thirds of us would rather talk about anything other than debt: health, work problems, and relationship problems were on the list of things we'd rather start a conversation about.
These feelings of anxiety are totally understandable. Unfortunately, they also mean we often miss out on having important conversations about debt: conversations that can help us not only feel better about our financial situation, but develop a toolkit to deal with it. So let's try to have one of those conversations now.
What happens once I'm in debt?
No matter how much you owe or to whom you owe it—whether it's the bank, the government, or mum and dad—you do have a responsibility to pay back borrowed money.
Whoever you borrowed the money from will have set up a payment plan with you when you first entered into the loan, and as much as possible, it's your responsibility to stick to that repayment plan. It sounds simple, but...
What happens if I can't pay it back?
If you lose your job, can't work for a while, or have a sudden and unexpected expense, then you may not be able to afford your repayments. Alternately, your work situation could change—maybe you've gone from working full-time to working part-time, so you can study or care for someone—and you might still be able to repay some money, but not the amount you had previously committed to.
If your situation changes and it affects how you can repay your debt, you must talk to the lender. Most (if not all) banks and government institutions can work with customers experiencing financial hardship and struggling to repay their loans, and it’s in their best interest to do so. Not only because they want to keep getting their borrowed money repaid, but because they want to retain you as a customer and prevent you from feeling disengaged with the financial services that are available to you as an individual.
Depending on your exact circumstances, you might qualify for a pause on your loan repayments or reduced repayment amounts. If you're stressed about a huge bill, give the provider a call and see if you can delay the payment, or split it into multiple smaller payments.
You won't know what help is available to you unless you call, though, so you really have to get in touch with your lender as soon as you can and talk to them about your current situation. If you can't do so yourself, you can often nominate a trusted person – like a parent, partner, financial planner, or accountant – to speak on your behalf.
Can I just ignore it and hope that it goes away?
Potentially, but be aware of the consequences. A quarter of the population and half of all millennials are taking this approach, and it’s not something you should consider lightly.
Debt won't magically disappear if you ignore it.
What will happen is that the outstanding amount of money will remain unpaid, the interest on it will keep accumulating, and your credit score and relationship with the lender will be negatively affected.
This might not seem like a big deal right now, but if you decide ten years from now that you need a home loan, want to rent an apartment, or even want an account with a phone provider, you could be denied based on your history.
If you ignore your debt for long enough it can be sold or transferred to a debt collection agency, and if you continue to ignore that debt you can be sued and forced to repay it. (If this happens, you need to seek legal advice immediately – here are some good links to legal aid in your area.)
Unfortunately, banks don’t see debt the way we do: the human experience of counting out every dollar to make sure you can meet a repayment at the end of the month is lost on a large company that views debt as just numbers in a spreadsheet. This doesn’t mean that you are powerless when you’re dealing with a bank or debt collector, though. Don’t forget that they would rather get some money from you than none. You can still negotiate, research, and understand your rights to make sure that you’re not being completely taken advantage of by the system, and ensure that you can manage your debt on your own terms.
So what are my rights when it comes to debt?
You have the responsibility to pay the money you owe back, but you also have a lot of rights when doing so. At a base level, you have the right not to be harassed, abused, or threatened by the lender or a debt collector who is acting for them, no matter how much money you owe (and equally, you shouldn't abuse them – so if you were planning on ringing the bank and giving them an earbashing, think again).
You have the right to realistic repayment expectations, meaning that lenders and creditors can't ask you to pay back a huge amount of money in a really short amount of time. You also have the right to understand the debt that you're in, so a lender or debt collector shouldn't get you to agree to a repayment plan by saying something like, 'Don't worry about reading the contract, you won't understand it – just trust me'.
If you think you're being asked to repay too much too quickly, being hit with large fees when repaying, or if you don't understand the payments you're making, check out ASIC's rules for loan repayments and make sure that your lender is not breaking the law. If they are, you can register a complaint with ASIC directly.
Is there anyone I can talk to for help and advice?
Yes, absolutely. Financial counsellors are free and can help you deal with creditors, negotiate loan repayments, access government benefits, and talk to you about things like loan consolidation. Speaking with a financial counsellor to get your debt in order could be the best decision you ever make. You can access a list of financial counsellors on the MoneySmart website, or you can call the National Debt Helpline on 1800 007 007.
If debt is impacting your mental health and making you feel sad, stressed, angry, or worried all the time, please reach out and talk to someone. Here are some really excellent, free mental health resources that a lot of people use:
Whether you owe a little or a lot, the best thing you can do to help yourself out of debt is to be proactive. Call the lenders you owe money to, make a plan together to pay it back, and stick to it knowing that soon the day will come when you will debt-free and won't have to worry about it any more. You are not alone in experiencing debt, and there are plenty of people and organisations who want to help you out of it.