As Australia’s household debt levels hover at record highs, many people are turning to risky ‘debt assistance’ services to manage their money instead of taking simple steps to handle their finances themselves.

Melbourne-based consumer advocacy group Consumer Action Law Centre warned these services, often described as ‘debt vultures’, offer to help debt-stricken Australians navigate their financial difficulties but take a substantial fee for doing so.

The comments were made in a submission to the Senate Standing Committee on Economics’ Inquiry into Credit and financial services targeted at Australians at risk of financial hardship, which was announced by the government on October 18.

Consumer Action Law Centre’s senior policy analyst Cat Newton said these businesses exploited loopholes in existing legislation to operate outside of debt and credit laws.

“Those loopholes in our laws and regulations need to be closed to make sure that all companies are acting fairly and playing by the same rules, and to make sure that we’re supporting people who are in financial hardship to get the good help that they need, rather than have companies take their cut on the way through,” Ms Newton said.

These services take advantage of people suffering financial hardship and have inherent conflicts of interest in the way they generate their revenue, Ms Newton said.

The New Daily looked at the ways ordinary Australians can manage their debts without relying on fee-charging ‘assistance’ providers.

DIY debt management

Dianne Dejanovic, senior financial counsellor with the National Debt Helpline, said managing debt was a case-by-case basis as everyone’s circumstances differed, but there are some common strategies that can help.

The best place to start, she said, was to simply look at your income and expenses, and try to find areas where savings can be made.

The MoneySmart website, operated by Australia’s market regulator ASIC, includes a budgeting tool that can help with this, Ms Dejanovic said.

Money saved here can then be put towards paying down debt, and in instances where someone owes multiple creditors, it can sometimes help to attack them one at a time by paying off extra with each repayment by using these additional funds.

In situations where someone has become unemployed this may not be enough, but that doesn’t mean there aren’t options available.

Instead of resorting to a debt assistance service, Ms Dejanovic said it was possible to negotiate with creditors for ‘hardship variations’ to their repayments, including freezing repayments for a time or reducing the amount that needs to be paid to make it more manageable.

However, this strategy is best suited to short-term financial difficulties, as it’s up to the creditor’s discretion whether or not to suspend interest repayments – meaning interest can accrue while someone’s repayments have frozen, increasing the amount owed.

Longer-term hardship can be trickier to manage, but again there is a multitude of avenues available, including insurance in superannuation for people who are injured and can no longer work, or selling assets where possible.

And, if things become too confusing, there is a number of independent online services that won’t add to the debt burden, including the National Debt Helpline (1800 007 007) and the MoneySmart website.