In light of the severely detrimental economic impact that the COVID-19 pandemic has had on the Australian economy, it is more important than ever to understand the meaning of hardship and how to support people going through a tough time.
According to the Financial Rights Legal Service, there are often two main reasons for financial hardship:
- a person could afford the loan when it was obtained but a change of circumstances has occurred after getting the loan;
- or they could not afford to repay the loan when it was originally obtained.
Way Forward provides support to people primarily in the first category. The highest proportion of the people we support are those who have overcommitted (30 percent of our total number of clients) but many of the people we assist also face a range of issues including illness, a relationship breakdown or job loss.
Creditors, utilities companies and lenders all have legal obligations when someone is in hardship. The person in hardship needs to be able to demonstrate that they have genuine reasons for not being able to service their loan. The legal obligations that businesses need to meet are included in the National Consumer Credit Protection Act 2009 . All credit providers must be registered or licensed with the Australian Securities and Investment Commission (ASIC) under these laws.
Every business that provides a service to our community, whether they are a lender, like a bank, utilities company, like internet and phone provider, must also now dedicates time and resources to assisting people who are in financial hardship. Many companies have unique and specific hardship support staff.
The Australian Bankers Association has described in its guideline document, called ‘Promoting understanding about banks’ financial hardship programs’ the commitments that have been made by lenders address hardship issues that people who are bank customers, can face, and how those issues can be managed.
Part of this growing awareness of hardship, what it means and how to address it, comes from having a better understanding of how to have non-judgmental conversations with people who have lived experiences and that these conversations aim to address the problems that are being encountered.
There is an increasing understanding that hardship is something people should not face alone and both those experiencing hardship and those businesses seeking repayments on debts can be proactive in helping people to recover.
I need help but don’t know where to start? Tips when seeking financial hardship support
There is no doubt that financial hardship can happen to anyone. Unmanageable debt usually happens as a result of unplanned events, like a job loss or business problems, sickness or losing a loved one.
While at times it may feel as though there is no way out, there are things that can help with finding a solution. We have put together a few tips that may help. If you need additional support for other issues outside of financial hardship, please check out our website page Other Support Services.
Tip 1 – It’s OK to ask for help
As a result of the COVID-19 pandemic and consequent recession many people are doing it tough and need assistance.
If you are facing financial difficulty and need a way out, the first thing to do is ask for help. Deciding who to approach for assistance, whether through a friend, a financial counsellor or an organisation like Way Forward, it is important to look for someone who will take care of your best interests.
To help in knowing where to go, the Financial Rights Legal Service has identified the two main reasons for financial hardship:
- a person could afford the loan when it was obtained but a change of circumstances has occurred after getting the loan; or,
- they could not afford to repay the loan when it was originally obtained.
If you’re in the first category, a financial counsellor or Way Forward can help. If you’re in the second category we recommend reaching out to a financial counsellor or the National Debt Help Line.
Tip 2 – Sooner rather than later
Sometimes we get stuck in indecision or confusion, unsure of how to face our financial problems. When it comes to financial difficulty, avoiding the issue can lead to further pain and discouragement.
Especially if your creditors are not informed of the full extent of your situation, they will continue their own processes, which include collection’s activities. For many people, the persistent phone calls from creditors can be overwhelming and the more that a creditor calls, the less someone in hardship will want to pick up the phone. This invariably means an increase in the volume of calls from creditors asking when the repayments will start. These ongoing and continuous phone calls can be stressful.
Creditors can commence legal proceedings if they do not receive responses about a loan and result in enforcement costs adding to the overall amount to be repaid. The debts could then be sold to third parties who are interested in only one thing: getting the money back.
Asking for help is the first step to finding a way out of debt. The sooner you look for help the more options you will likely find available.
Tip 3 – Work through a budget
If you are struggling financially, one of the first steps is a budget. There are plenty of good budgeting tools available and one we recommend is the Money Smart budget on the ASIC website. Importantly, seeing where you are spending and then identifying needs versus wants can help with better money management.
Invariably if you are experiencing financial difficulty, it’s likely you have already cut back on expenses. Doing a budget helps to prioritise and anticipate upcoming expenses, identifying the ‘nice–to–have’s’ and setting boundaries. Remember, a budget is not about outlining what you won’t spend, it’s about putting boundaries around how you will spend.
Once you’ve outlined your income and understand your expenses, you know how much you have to put towards your debts. This can range from having nothing left to put towards debts, to having the ability to meet all of your repayments. Regardless, it’s important to try to work out what is possible.
Finally, a budget is one of the first requests your creditors will ask. When they have as much detailed information and evidence as possible, you will have a better chance of being assisted in finding a solution.
Tip 4 – Be clear on how long you will need assistance
The length of time you anticipate experiencing financial difficulty will determine the different solutions and approaches available.
If you’ve lost your job and hope to be employed again in a role with equal pay and conditions, then you may only require 3 months support. If you’ve lost your job and expect to find another, albeit on less money, then you may need help for a longer period.
The length of time that you need support will determine the available options. If your financial difficulties are likely to last for longer, ensure that the solutions you are choosing don’t put you in a worse position. For example, deferring payments to a loan can provide short term relief but the interest continues to accrue, and you will end up owing and having to repay more over the life of the arrangement.
The length of support from your creditors will vary depending on what has caused your financial hardship and how long it’s likely to affect you.
Tip 5 – Be able to articulate what’s happened
From our experience, most people express embarrassment about their situation, feeling they somehow should have known how to avoid their predicament. We have also understand the emotional toll that comes with re–telling difficult stories that led to financial hardship.
Unless you have a financial counsellor or Way Forward hardship advocate representing you, when dealing with multiple creditors, it is likely you will repeat your circumstance multiple times with each organisation.
Knowing this ahead of time can help you to work through how you intend to share the circumstances surrounding your hardship, considering that the more information you can provide the more likely your creditors will be able to assist.
Tip 6 – Know your rights
Providing assistance to people who are experiencing financial difficulty is regulated in a number of industries.
Banks (creditors), utilities companies and lenders have legal obligations when someone is in hardship.
The person in hardship needs to be able to demonstrate that they have genuine reasons for not being able to service their loan. The legal obligations that businesses need to meet are included in the National Consumer Credit Protection Act 2009. All credit providers must be registered or licensed with the Australian Securities and Investment Commission (ASIC) under these laws.
If you’d like to better understand these rights, we recommend talking to a financial counsellor or the National Debt Help Line.
It’s a big step but we strongly encourage you to acknowledge when you are in a difficult financial situation and the ask for assistance.
Ask yourself: if a friend with financial problems, came to you for advice, would you be encouraging them to seek assistance? Why not apply that rule to you? The sooner you get support, the more options will be available and the sooner you can start on the path to financial health.