What to do if you can't pay off your debts

It’s much easier to rack up debts rather than pay them off, particularly if you’re juggling a few credit commitments at the same time. The danger is that a failure to pay off your debts can result in being viewed as a credit risk, or worse add a credit default listing or bankruptcy on your credit report

Here are a few things you can do if you can’t pay off all your debts to prevent the problem from spiralling out of control.

Speak with your credit provider

Whether you’re struggling to pay your utility bill, credit card bill or phone bill, it’s always recommended you speak with your credit or service provider to alert them to your financial situation. It’s always better to be honest from the get go rather than let bills go unpaid in the hope that they will just “give up”.

Most companies have hardship officers who can evaluate your situation, according to ASIC’s Money Smart – but whether they can assist you will depends on why you are having difficulty making payments and how long you will have financial problems.

Set and stick to a budget

Once you have worked out a repayment plan with your lender, set a budget and break it down into components. This will help you determine what you need to spend on and cut out unnecessary costs, so that you can use the money saved towards paying down debt.

Seek help

Lastly, seek help where necessary – there are a myriad of options available including free legal advice from Legal Aid offices in your area, telephone counselling, free financial counselling and emergency relief (where charities help you with food/rent expenses).

Remember that there is always a way out of debt if you start taking control of it now – don’t wait until the last minute to deal with it!

Also read:

Tips to help you manage your finances
Ten tips to getting out of debt