DISCLAIMER: This chapter references general topics like deductible debt, but nothing included should be interpreted as tax advice. You should see a tax adviser if considering these topics.

Debt can feel overwhelming at times, especially when other emergencies crop up such as job loss or illness.

Whether you are one step away from bankruptcy or simply realising you want your credit card cleared, there are numerous things you can do to clear it faster, deal with debt collectors without stress and get your finances back on track.

This chapter provides good context and checklists, but if you are currently in a genuine financial crisis, we recommend you reach out to Financial Counsellors Australia immediately.

Financial counselling is free for all Australians and if you are facing financial hardship it is the best resource you can seek out.

This chapter covers two of the most critical points to consider debt emergencies:

1. How to deal with debt collectors
2. How to clear debt

And should be used in conjunction with the help of a Financial Counsellor, not as a replacement for one.

How to deal with debt collectors

Debt collectors want their money; it’s as simple as that. What many don’t know is they will accept lower amounts if you can offer a lump sum. Instead of avoiding debt collectors, use these tips from debt collectors, including my own father.

1. Get your paperwork in order Find all the paperwork outlining how much you owe and to whom. Read through it carefully so you know the amounts and can easily negotiate when you speak with debt collectors. It might help to highlight the amount, the interest, and due dates so you can easily refer to them at a glance.
2. Talk to them
3. Negotiate There is a lot of room for negotiations when it comes to debt collectors. In fact, you can often get 30 - 50% off the debt if you are able to offer a full payment. Ask them what the lowest amount is if you can pay today. Then ask if that amount is truly the lowest or offer something lower than what they did.
4. Make an immediate payment if possible Whether you have a full amount available or will be asking for a payment plan, if you are able to pay anything at all on the day, this will help. It is viewed as a gesture of goodwill, shows you are willing to pay off the debt and are going to work with them. However, do not pay more than you can afford.
5. Arrange a payment plan if you don’t have a lump sum Without a lump sum to offer, you still have options and can still possibly negotiate a lower amount. Discuss a payment plan you can afford, based on your finances and do not let them bully you into paying more. Specifically state you are in financial hardship. This ensures they legally have to consider a payment plan.
6. Get written proof it is finalised
7. Request it be removed from your credit file By paying the debt in full, you can request a goodwill deletion or adjustment. This means the overdue debt can potentially be removed from your credit file. It cannot always be done but if you have an otherwise good credit history, there is room for adjustments to help increase your credit score and clean your credit file.

Stop avoiding the phone calls. Answer them and if you have your paperwork ready at the time, start negotiations. If they call at an inconvenient time, still answer, tell them you do want to discuss it and can they please call at x time when you are available and will have all the paperwork there to discuss the payments or offer to call them. Then be sure to answer the phone at the agreed time.

Be calm when you speak with them, clear, concise and firm. They may push for you to do something now but if you remain calm and repeat “I need to have my paperwork for us to discuss this, please call back at x time” they will have to accept it. Do not say more or try to explain your situation too much. They are trained to get around your excuses so keep your answers short and stick to repeating the facts when you can discuss and why.

The older the debt is, the more likely they are to accept a smaller payment from you. If they simply will not budge, say “That’s ok. I will have to go on a payment plan then.” Only agree to small repayments and they are likely to be more negotiable on the lump sum offer.

If you don’t have a lump sum available, you can go on a payment plan. See step 5.

Stay calm, reiterate what you can afford and why. For example, someone I know had thousands of dollars owing but lost their job. She offered $10 a week as that was all she could afford and they accepted it. Later, when she got a job and saved a little, she rang and discussed paying a reduced lump sum, which they accepted.

They will push for more but be firm. Some money is better than no money so if you keep stating what you can afford and why it will not be more, without deviating from those statements, they will have to accept it.

Make sure you are emailed a statement from them outlining the date, what was paid, that the debt is cleared and no more money is owed. Essentially, a final statement. Ask them to do it while you are on the phone and get a receipt number as proof of the phone call. Write down the time, date, who you spoke to, and what you paid for your own records as well. They should also mark the debt as paid or settled on your credit report.

How to clear debt

Clearing debt enables you to use more of your money to save and invest in your future. The quicker you clear it, the more you save on interest, fees, and charges. To do this, you need to create a plan of action and know what you are dealing with. I am going to assume you have a budget or are using the tips in this book to create a budget. Once you have a budget, create your plan for debt.

Gather the information on all your debts. How much you owe, where you owe it, what the repayments are, and what the interest rates and charges are. Doing this can be overwhelming but getting it out in the open will help you pay it off.

Now you know what you owe, you can create your plan.

1. Have an emergency fund Get $2,000 into an account to use for emergencies so you stop using your credit card or debt to pay for those emergencies. Only use this money for real emergencies. Anything which would be a normal expense such as an electricity bill, car service, new tyres, etc. should be budgeted for in your regular budget.
2. Get the family on board If you have joint finances with your partner, you’ll need them on board with paying off debt and changing your habits. Make a time to sit down and discuss your money, going through these steps, and creating the plan together.
3. Commit to stop using debt Make a commitment to yourself to stop using credit cards, personal loans, Afterpay, and any other credit service as you pay off debt. Credit cards can be a great financial tool when used correctly. However, if you aren’t paying them off each month and have debt, they are not great for you.
4. Negotiate and get a better deal Call and ask to reduce interest rates, waive fees, or see what else they can offer. If your credit is good and you have enough income, it might be worth looking to switch your debts. For example, if you have a credit card, there are numerous 0% balance transfer offers. By switching, you will be able to pay 0% interest but be sure to close your old credit card once you switch and do not add any more debt.
5. Decide which to clear first Firstly, keep the minimum repayments up on all debts so you don’t fall behind. Then choose which debt you are going to focus on to clear first. There are two commonly used methods for clearing debt - a debt snowball and a debt avalanche.
6. The debt snowball is where you pay the smallest debt first. Any extra money you get to pay off debt goes to this debt to clear it first. Once that debt is paid off, you put the money you were using for that debt onto the next smallest debt and so on until all debts are clear. Most prefer this method as clearing a small debt quickly provides a psychological boost and motivation to continue paying off debt.
7. Find motivators Join groups where people are clearing their debt so you can support each other, follow people paying off their debt and sharing tips on social media, and surround yourself with like-minded people. People in these groups love sharing tips and showing when they have paid off a debt. They are super supportive and it can help you stay on track. You’ll also be able to read and learn about their journey paying off debt which can be motivating.
8. Overhaul your expenses When was the last time you reviewed your insurance? Electricity, gas, internet, mobiles and all other expenses? Write down all your expenses then compare each one to see if you can get a better deal. With insurance, too many people simply pay the renewal fee annually. Most of the time, if you get a fresh quote or compare online, you can save hundreds on your insurance instead of paying the renewal.
9. Find ways to make more money There are only so many ways you can cut back on your spending. By all means, do a complete overhaul of your budget, review all your expenses and see where you can cut back to use that money for paying off debt. Then, shift your focus to making more money.
10. Utilise lump sums Use that tax return, bonus from work, or any other unexpected money to pay the debt off faster. If you want to treat yourself with it, set a limit for that but try to put as much as you can on debt. Lump sums make it much easier to reduce your debt and free up your money.

Making this commitment is an important step to break those habits. Along with this, learn delayed gratification. If there is something you really want to buy or feel you need, put it on a list. At the end of 30 days if you still want or need it, consider working it into your budget and save for it but do not allow yourself to put it on debt. This will go a long way in helping you change your spending habits.

Be aware, if you choose to do this, every application you make will go on your credit history which can make it harder to get a mortgage or similar later.

The debt avalanche is where you pay the debt with the highest interest rate off first. Again, any extra money you have for debt is paid off this debt. Once it is clear, you take all the extra money and the minimum repayment you were making on this debt and put it on the debt with the next highest interest rate.

With this method, you save more money because you pay less interest by clearing the more expensive debts first. However, for some, if the debts are large it can feel as if you are never going to pay the debt off. It comes down to which method you are most motivated by and will stick to.

Consider printing charts to colour in as you clear your debt. Debt Free Charts have a wide selection of charts you can print for free for anything from credit card debt to saving for a house deposit.

Once you have compared and are sure you are on the right deal for you with all your providers, look at ways you can cut back. Try reducing the amount of meat you eat, planning your meals, shopping with a list, and cooking in bulk to save on groceries. Consider refinancing your home loan to get a lower interest rate or move to save money on rent if you can. Check your subscriptions to see if you are paying for services you no longer use. By reviewing all your expenses, you’ll be able to know how much you can throw at debt and how much more you need to make to clear it faster.

We are fortunate to live now when there are so many ways to make money on the side, many without much effort and which can be done at the same time as each other. Work out how much time you have, what you are comfortable doing, and search for ways to make money.

Some of my favourites have been renting out my garage for $50 a week on Spacer. Renting out a spare room either to boarders or on Airbnb. One Christmas when we went away, I rented my tiny 2 bedroom apartment for $1,300 for 5 days. Another time, in the middle of winter I rented it out for $600. Freelance writing, blogging, and consulting have turned into full-time incomes for me.

Sell off anything you can, consider buying things to resell or selling for others. Look at sites such as Airtasker for odd jobs available you could do. Offer domestic services such as ironing, cleaning, babysitting, pet sitting, yard work, etc. Anything you can do to bring in money and clear your debt faster. I tracked my side hustles one year and made $33,277.57 in 12 months with very little effort.

One final note on debt, there are financial counsellors available to help you with your finances. Most charities have this option available as do some churches. If you need help sorting out your debt, negotiating with your debtors and working out what to do, a financial counsellor is a great help.

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About Kylie Travers from The Thrifty Issue | thethriftyissue.com.au

Kylie Travers owns The Thrifty Issue which aims to empower Aussie mums through financial independence. Having gone from homeless single mum on Centrelink to multiple international award-winning CEO she shares all her tips to help other Aussies make the most of their money. Kylie has won numerous international awards including Best International Personal Finance Blog and been a finalist for Young Australian of the Year because of her work.

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NOTE: Aussie FIRE is a free educational resource prepared by Pearler, with permission from the co-authors. At Pearler, we strive to make investing for your long term goals easier and fun, but we only provide general information and/or general advice. We don’t present you any options based on your personal objectives, circumstances, or financial needs. Any advice is of a general nature only. All investments carry risk. Before making any investment decision, please consider if it’s right for you and seek appropriate taxation and legal advice. Please view our Financial Services Guide before deciding to use or invest on Pearler.