With extremely high levels of household debt at the moment, many Australians are currently struggling to keep up with their repayments.
This runaway debt is catching up to more of us, with the Australian Financial Authority this week revealing that total personal insolvencies increased 0.6 per cent in the September quarter 2015 compared to September quarter 2014.
This was a second consecutive rise, with personal insolvencies in June quarter 2015 rising 0.9 per cent compared to the same quarter last year.
The new statistics also revealed that the number of debt agreements in the September quarter increased by 2.4 per cent compared to last year while bankruptcies fell by 0.1 per cent and personal insolvency agreements fell 33.3 per cent.
With this rise in the number of insolvencies and debt agreements, it’s likely that many Australians have sought out the services of debt solution companies. In desperate times of overwhelming debt, the advertised promises of these firms to “solve all of your finance problems” can be quite tempting.
But is there a catch?
Let’s take a look at these companies and what they do.
Debt solution companies are firms that people pay to manage their personal debt problems. These groups usually offer to do this through:
Debt consolidation involves repackaging all debts into one loan that may or may not have different fees and interest rates. Companies that offer debt consolidation have to be licensed with the Australian Securities and Investment Commission (ASIC).
These groups can also set up debt agreements with creditors on your behalf when you cannot pay everything you owe but want to avoid going bankrupt. For a fee, the debt solution company can act as administrator to organise a debt agreement proposal based on what you can afford to pay. You pay creditors back the settled amount over a set period of time.