Be wary of quick fix debt solutions
NO ONE likes being in debt, but taking on some level of debt is, for many of us, necessary to reach our financial goals.
So, it's understandable that anyone with a tarnished credit history may be eager to do whatever it takes to be eligible for a competitively priced loan. However, our money watchdog ASIC is warning about companies that claim they can cure a poor credit rating or offer a quick fix for debt problems.
In my experience, most people know when they are in debt over their heads, even if it's only a gut feeling. Of course there are some obvious signs like regularly spending beyond your budget, or carting valuables off to the local pawnbroker to drum up some extra cash.
A key warning sign is approaching non-mainstream, high interest, 'fringe' lenders for funds. But think carefully about turning to so-called credit repair and debt management firms. These companies can charge high fees without actually fixing credit and debt issues, potentially leaving people in a worse financial situation.
An ASIC report found debt management firms can use of high-pressure sales techniques, in some cases asking for payment upfront without clearly explaining their fees and costs.
Credit repair companies may try to clear a customer's bad credit record by getting in touch with an external dispute resolution (EDR) service like the Financial Ombudsman Service or Credit and Investments Ombudsman. It's a service these companies charge for. Yet working with an EDR is something consumers can do themselves at no cost at all.
In fact, there is a whole range of free services that can help you fix poor credit reports or resolve debt problems.
If you're finding it hard to get a loan because of an incorrect default listing on your credit report, speak to the creditor and ask for it to be removed. If you get no joy, contact the appropriate EDR service.
If you're battling runaway debt, free help is available through the National Debt Helpline (1800 007 007). Or head to ASIC's MoneySmart website and follow the links to financial counsellors. Most offer a free or very low cost service that can include negotiating debt repayments with your creditors, applying for hardship variations on loan repayments, and developing a plan to get your finances back on track.
I am more than aware that sometimes debt can ensnare us no matter how hard we try to avoid it, through say, our income unexpectedly drying up, an investment going bad or just rotten luck. Under these circumstances professional advice and assistance is very useful, if not essential. But you don't have to pay for services that can promise a lot and deliver very little.
Paul Clitheroe is Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.