Alternatives for Consolidating Debt

There are different options available to people looking to consolidate debts and reduce their debt burden.

Debt Consolidation Loans

Debt Consolidation Loans are either personal loans or home loans which are used to refinance your various existing debts such as credit cards, utility bills, cash loans etc.
The idea behind a debt consolidation loan is that by putting all your high interest debt together you will be able to reduce your monthly repayments and therefore make this debt more affordable.

Consolidating unsecured debt into a home loan will usually result in lower repayments. This is because the debt will now be paid over a longer term (25-30 years), and attract a lower interest rate. You should be aware that consolidating debts into a mortgage will significantly increase the total amount you will be repaying over the full loan term.

Also it is important to note that the only people able to avail themselves of this debt consolidation solution are those who are home owners and have sufficient equity in their home.

Unfortunately to qualify for a personal loan for debt consolidation you would need to :

  • Have a clean credit history;
  • Have been in the same job for more than 1 year;
  • Overall debt for consolidation must be under $50,000;
  • Be up to date with all your loans/debts and not in a hardship arrangement.

It is true to say that people who are able to qualify for a debt consolidation loan , frequently do not have a significant need in it.


Informal Debt Negotiation

This is a process of simply contacting each and every creditor and alerting them of a change in your financial circumstances. You may wish to do this yourself or get a professional to do this on your behalf.

You may propose any of the following arrangements to your creditors:

  • Request extra time to pay if you know that your financial hardship is only short term;
  • Agree a reduced payment plan in line with what you can afford today. If your circumstances are ongoing, you might need to enter a formal agreement for ongoing reduced payments, but your creditor may accept a reduced payment for a short period;
  • Request that your creditor waives some of the interest or penalty interest in view of your circumstances;
  • Offer to pay out the debt n full if you receive a discount on your outstanding balance;

It is important that you understand that because these arrangements are informal, your creditor can go back on the agreed deal at any point in time.
If you wish to ensure that the agreement reached stays in place, you may wish to consider a Formal Debt Agreement.


Debt Agreements

If you are unable to keep up with your debt repayments but do not wish to declare bankruptcy, you can submit a Part IX Debt Agreement proposal for your creditors for consideration. The Debt Agreement proposal sets out details about how you intend to pay out your outstanding debts.

If your creditors vote to accept your proposal you will be able to enter into a Debt Agreement which is regulated by the Bankruptcy Legislation of Australia. A Debt Agreement (also known as a Pert 9 Debt Agreement) will be recorded on your credit report for seven years.

You will usually have to pay an upfront fee to a Debt Agreement administrator to enter a Debt Agreement plus a monthly administration fee throughout the period of the Debt Agreement.
A Debt Agreement can help you become debt free at the end of the agreement period.

Not everyone is able to qualify for a Debt Agreement. If you do not meet the requirements of a debt agreement, you may qualify for a PIA (Personal Insolvency Agreement).


Personal Insolvency Agreements

If you are unable to pay your debts as and when they fall due, but do not qualify for a Debt Agreement, then a Personal Insolvency Agreement may be the answer. A Personal Insolvency Agreement is a legal insolvency agreement where creditors agree to accept an offer from you with respect to settlement of your outstanding debts.

This agreement offers security to both parties. Personal Insolvency Agreements are regulated through the Commonwealth bankruptcy trustee, ITSA. Most personal Insolvency Agreements are structured over a 5 year period where you agree to make set repayments n full settlement of your debts. Creditors are required to vote to accept your proposal.



Bankruptcy is a legal way of declaring yourself insolvent (unable to pay your bills). The process of bankruptcy will eliminate your debts and you will no longer owe any money to your creditors.

Bankruptcy may sound attractive if you are currently feeling that there is no way out of your debts. You do need to be aware that bankruptcy places various restrictions on you throughout the bankruptcy period and even after you are discharged.

Your bankruptcy will remain on your credit report for 7 years and will affect your ability to borrow.


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