Crisis: Sam Henderson
Financial distress occurs when a person or family is struggling to meet their personal or business expenses. We saw widespread mortgage stress across the US during the GFC and a corresponding rise of the debt consolidation industry in Australia during the same period. But what do you do when you can’t pay your bills, and how can you help friends and family in times of financial distress?
Let’s face it, most of us struggle to manage the family budget. It’s not easy and we’re certainly not taught how to do it in school. Consequently, there are around 30,000 bankruptcies each year and that figure has been fairly consistent for some time. So, too, the level of business administrations has been sitting around 10,000 since the GFC 10 years ago, with some slight upward inflection in recent quarters.
According to the Australian Financial Security Authority, the key reasons for personal financial distress are consistent and include unemployment, excessive use of credit and relationship breakdown.
Importantly, if you, a friend or family member are in financial distress, it’s just so important to seek help. Asking for help is okay. Many people feel too proud to reach out to a professional or friend, or too embarrassed about their financial situation. As I always say to my kids, “a problem shared is a problem solved”.
Rest assured, there’s a whole industry to help people in distress. A financial counsellor is trained to assist you with advice about managing your creditors and is trained in the workings of the Bankruptcy Act (1966), to either help you avoid bankruptcy or deal with it in the most constructive fashion.
So there are plenty of willing and capable professionals trained to assist you or your friends and family to restore financial control and stability.
Financial distress comes alongside other distressing events such as relationship breakdown or unemployment. These are common and easily overcome if you are open to seeking help. People love helping you anyway, so let them do it.
Where to go
One of the best sources of help is Lifeline (13 11 14). Wesley Mission also takes around 6000 calls a year from financially distressed people and there are also state-based organisations that specialise in assisting people during financially demanding times.
An essential port of call is the Money Smart website (moneysmart.gov.au), which recommends these organisations:
NSW – Financial Rights Legal Centre, phone 1800 007 007.
Tasmania – Consumer Credit Helpline (Hobart Community Legal Service), 1800 232 500.
Victoria – MoneyHelp, 1800 007 007, and Consumer Action Law Centre,
(03) 9629 6300.
South Australia – Consumer Credit Law Centre, (08) 8342 1800.
Western Australia, Consumer Credit Legal Service, (08) 9221 7066.
My advice is to try to avoid bankruptcy if possible. Although it does offer protection from aggressive creditors and in many cases involves wiping away the debt. That can certainly help in relieving the mental anguish of constantly owing money.
Bankruptcy does, however, stay with you for a long time and can affect future credit applications, travel plans and the ability to act as a company director, so counselling and seeking help to flesh out the options and ramifications of your decisions is essential in creating a clear path forward.
Another option is debt consolidation. There are companies that package your debt for a fee and help you manage your budget. This is a good option if you have a house to refinance because it can lower your interest repayments and reduce no-payment fees. But only enter an agreement if, in fact, it does reduce your overall fees, and always get a second opinion before committing yourself.
Don’t let financial stress ruin your life or the life of your friends and family. Always reach for help, which is available in many directions, and make sure you take care of yourself by enjoying other areas in your life.
Turning your financial life around can be a hugely rewarding, positive and empowering process, and often leads to financial abundance as you learn the hard way to enjoy a prosperous life.