Man in debt calculating his billsContemplating your financial choices can be confusing. When someone reaches the point of reaching out for help they are often already under a considerable amount of stress. Looking for solutions in a sea of options can be challenging and possibly even too much to deal with. We’ve put together this overview of debt management solutions to hopefully make the process a little easier.

Once you’ve read through these options it’s very important to get the right advice from a trusted advisor before making any decisions. Some decisions can be irreversible when approved so it’s important to make an informed choice right from the start. If you are looking for debt management solutions that help resolve temporary or short term challenges, such as job loss we recommend you read our Short Term Debt Management Options explained blog.

Long term debt management options

Debt Pay Down Strategies

A pay down strategy is a methodology for paying down your debts.  There are two methods recommended:

The snowball method – minimum repayments are made on all debts but surplus funds are allocated to paying off debts with the smallest balance.

The stacked method – minimum repayments are made on all debts but surplus funds are allocated to paying off debts with the highest interest.

Read more about these methodologies in our pay down strategies comparison

Pay down strategies require determination and discipline and like all good strategies start with an end point in mind.  To be able to stick to a pay down strategy you really need to be clear on your financial goals. We suggest you read one of our earlier articles on goal setting and changing your financial habits to give yourself a successful mind set from the get go. When you have your end point goal established you’ll find you have something to strive towards to drive you to the finishing line and give yourself some comfort when times get tough.

Once you have your goal it’s all discipline from here on in. Tackling your debt is something to see as challenge to take on and strive to that end point; giving yourself some rewards as you reach your milestones along the way. You might find setting a check list for quick wins helps also, by finding savings within your budgets or life hacks to work the system to reduce your costs of insurance or utilities will get you there faster.

There are many different roads to debt freedom but we find that the Snowball or the Stacking Method are the effective self management strategies. Develop a strong budget, set yourself a target, and choose your weapon of debt reduction.

Debt Agreements

A debt agreement is a longer term debt management solution that is an alternative to bankruptcy.  It deals with unsecured debt only.

The arrangement is often used to help people to keep a hold of their assets, like their house, car or business equipment that generally involve secure debt and put in place an arrangement that only involves unsecured debt.  The idea being that by sorting that out, income is freed up to keep paying secured debt.  Debt Agreements have more flexibility than bankruptcy as you maintain complete control of your finances and are not forced to start from scratch.

It is a legal instrument, specifically designed to assist people who find themselves overcommitted, unable to meet their loan repayments when they fall due and their situation is unlikely to be resolved in the short term.  This is referred to as being insolvent.

A Debt Agreement is a legally binding agreement between you and your creditors that allows you to renegotiate your debt contract with your creditors.

It puts in place a plan to pay off all of your unsecured debt completely over a 3 to 5 year period.  This formal agreement with your creditors is backed by legislation i.e. you and your creditors are bound by the terms. You pay an agreed amount over a specified period of time that is determined by not just what is owed but also takes into account what you can realistically afford.

In other words, formal negotiated arrangements via a Debt Agreement offers the ability to negotiate a reduction in the total amount of unsecured debt owed.  Once in the agreement all interest is frozen and no default or further service fees can be charged.  It completely puts a stop to debt collector demands, and provides a simple payment plan for you to pay all creditors in the agreement.

Debt Agreements are particularly suited when:

    • Other debt management options have been exhausted;
    • Creditors are unwilling to come to the party in an informal agreement arrangement, not as uncommon as it should be;
    • When the terms of an informal arrangement or financial hardship are unable to be met; or
    • You want to avoid bankruptcy.

A Debt Agreement is set up and administered on your behalf by a Debt Agreement Administrator. There is qualifying criteria for a Debt Agreement that needs to be met and effects that need to be carefully considered.  One in particular is that for the period of the agreement your credit will be completely restricted (some welcome this fact after all their trouble).  The fact that you have entered a debt agreement is recorded on your credit file for 5 years and permanently registered on the National Personal Insolvency Index.  These are discussed on our debt agreement consequences page in detail. This option is a saviour for many allowing them to resolve seemlingly unresolvable debt situations, without having to resort to bankruptcy, but a serious step to take nonetheless.

Informal Arrangements

Get some breathing space with an informal arrangement.  Similar to a Debt Agreement, but without the credit file implications. Generally only used as a short or medium term solution, but if your short term situation becomes longer term it is sometimes possible to negotiate extensions of time on these arrangements.  An informal arrangement involves asking your creditors to give you some leeway for a period of time whilst you get back on your feet. In some cases you can even negotiate a settlement, depending on your level of debts and the specifics around your difficulties.

Informal Arrangements require direct negotiation with your creditors, but can avoid the need for formal insolvency procedures. By reaching an agreement with your creditors with an informal arrangement they may suspend any legal action against you and you will be able to manage your debts without another loan, reducing the need to get further into debt.

It is important to remember that because these arrangements are informal they have much stricter terms and will be cancelled if they are not met.  We encourage you to read our more detailed discussion on informal arrangements in our short term debt management options article, if you are contemplating this action or read more about how Debt Cutter can help set up an Informal Agreement on our solution page.

Personal Insolvency Arrangement (PIA)

Also known as a Part X arrangement.  Similar to bankruptcy but provide a little more flexibility in terms of assets and being able to run a business.  There are no debt, asset or income limits to be eligible to propose a PIA. If you meet certain conditions including being insolvent and not having proposed another PIA in the last six months, you are able to appoint a registered trustee to take control of your property and forward a proposal to your creditors. The trustee examines your financial position and advises the creditors what they can expect you to pay via the proposal and how much they could alternatively expect if you take the bankruptcy road.

All of this happens over a 25 day period from the day the trustee takes control. If the proposal is accepted, the creditors are bound by the terms. But if it is rejected, creditors can vote in favour of you becoming bankrupt or leave you to decide an alternative way to resolve your debts.

Appointing a trustee is an “act of bankruptcy” and automatically disqualifies you from managing a corporation until the terms have been complied with; prohibits you from dealing with your property, affects your credit record and appears on your credit rating for five years; and is recorded on the National Personal Insolvency Index.

If you are unable to reach a compromise with your creditor then the last resort is Bankruptcy.


If you are unable to pay your debts and cannot come to suitable repayment arrangement with your creditors, you may voluntarily lodge a petition to become bankrupt. Creditors can apply to the courts to have you made bankrupt if you are unable to pay your debts and have not negotiated an arrangement to pay down what is owed.  We therefore encourage you to always stay in touch with your creditors if you are having difficulties.

Both these paths to bankruptcy are serious and require you to get advice from a professional financial advisor so you fully understand the process and what will happen with regard to your ability to control your financial situation over the term of the bankruptcy. In every bankruptcy case a trustee is appointed to administrate all your debts and manage your estate. For the full term of the bankruptcy agreement.

There are many restrictions to your personal, financial or business life that need to be considered with bankruptcy.  The appointed bankruptcy trustee will sell the assets that you are not allowed to keep to repay your creditors and if you earn over a set amount of after tax income, you will be required to pay half the excess to the trustee to continue repaying the creditors. Bankruptcy lasts a minimum of three years and can be extended by the trustee but after that time period you will be discharged from most of your debts.

There will be a permanent record of your bankruptcy on the National Personal Insolvency Index (the NPII) and will be reported to your credit file and listed for five years.  Bankruptcy is a last resort solution and should definitely be discussed in detail with a financial counsellor or other trusted advisor, but is worth considering if your financial situation has spiralled out of control and is unable to be resolved by other options as discussed above.


testi-200x200-DefaultIf you’re facing financial hardship we are here to talk about a solution.  Call us on 1300 887 211 or Book a Free No Obligation Phone Consultation with our friendly team and we can discuss debt management options specially focused on your personal situation.