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Five tips to help pull yourself out of a debt spiral

If you're drowning in debt, don't be afraid to ask for a helping hand. <i>Photo: Getty</i>

If you're drowning in debt, don't be afraid to ask for a helping hand. Photo: Getty

With the cost of living rising, more Australians are falling into increasing debt – calls to the National Debt Helpline have increased 30 per cent this year.

Finder data also shows almost one in two Australians have taken an average of $2365 out of their savings in the past 12 months to pay off debt and for essential expenses.

Alison Banney, money expert at Finder, said a growing number of families are living week to week.

“Aussies are doing it tough, with many unable to cover rising costs from their income alone,” she said.

“Millions of people are in pretty bad financial shape at the moment and pressure continues to build.”

Deb Shroot, financial counsellor at Financial Counselling Australia, told TND she has had many people calling for help as they struggle to deal with the price of “everything” in their life going up, including petrol, groceries, children’s expenses and housing costs.

If you’ve found yourself sinking in debt-filled quicksand, read on to find out what you can do to help drag yourself out.

Recognise danger signs

Always try and set yourself up to save money before things get out of hand.

But you should always be on alert for your budget starting to spiral out of control.

Ms Shroot said being unable to afford to make essential payments is a sure sign that you’re in financial stress.

This includes being unable to pay for everyday expenses such as groceries, petrol, utilities, housing costs and even children’s expenses like nappies.

Avoid the debt spiral

One hard and fast rule to avoid worsening your financial situation is: Don’t use debt to get out of debt.

Ms Shroot said she has seen a lot of people use Buy Now, Pay Later (BNPL) services to pay off their debts, but this can lead to a never-ending spiral of debt piling on top of debt.

BNPL is currently exempt from Australian credit laws, which allows these services to bypass important consumer protections, such as checking to make sure customers can afford to make repayments.

“We’re seeing people take out [up to] six different Buy Now, Pay Later products at once, and … those debts then become prioritised and [customers] go to their account to pay their rent, for example, and there’s no money left,” Ms Shroot said.

“We’re also finding that people are using Buy Now, Pay Later for essentials.

“So as you can imagine, if you’re unable to pay for your groceries this fortnight, the next fortnight being able to afford your groceries plus all the repayments on the Buy Now, Pay Later for the previous fortnight, you can see how it can potentially become a really big problem.”

Ask your creditor for help

Going to the company you owe money to could be a daunting task, but overcoming your pride could help you out in the long run.

If you’ve found yourself struggling to pay off debts, Ms Shroot recommends asking creditors if there’s anything they can do to ease the burden, such as drawing up a new payment plan.

She said companies offering essential services such as utilities and regulated credit products like mortgages and credit cards are “obliged” to offer assistance if you’re facing hardship.

“You may be able to negotiate lower repayments, for example, [or] you might be able to negotiate an interest-free period,” she said.

“There’s a whole range [of options], just depending on the situation you’re in.

“If it’s something that’s long term and quite serious – for example, you may have gotten very sick, or there may have been a domestic violence situation – you potentially might qualify for a waiver.”

Look for ways to save money

This might seem like a no-brainer, but dedicate some time to find ways to save money.

This could be from shopping around for a new electricity or internet provider, to checking out any special offers or grants you might be entitled to.

Depending on which state or territory you live in, concession card holders are eligible for services such as discounts on utilities.

To find out what you might qualify for, search for a ‘savings finder’ service run by your local government online.

Seek professional advice

There’s no shame in asking for help when you need it.

If you’re struggling financially, seek advice from an expert before the situation gets worse.

The National Debt Helpline can put you in touch with a free financial counsellor over the phone or online, and other financial resources can found through the Australian Securities and Investments Commission’s Moneysmart website, and the Australian Financial Security Authority.

“What a financial counsellor can do is offer free, independent and confidential advice to anyone who’s in financial difficulty,” Ms Shroot said.

“So we can look at the entire situation that they’re in. We can look at all the different debts. We can look at if there’s other struggles in their life, or there’s been other change of circumstances that has attributed to their financial hardship.

“And we can work holistically with that client to provide options and help them move forward to get out of the situation.”

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