What is debt adjusting?

The first step is usually a call to the lender. Most banks, utilities and credit providers have hardship teams that can agree a short-term reduced payment, a payment holiday or an extension, and a hardship variation written into a consumer credit contract can reduce repayments, extend the term or pause payments for a period. Keep evidence of what changed, such as a medical certificate or proof of lost income, and get any agreement in writing.

Creditors will also offer structured payment plans for overdue accounts, but arrears may keep attracting fees and interest unless they are frozen, so confirm the effect and whether the plan will be reported to credit reporting bodies. A debt consolidation loan rolls several debts into one repayment, which simplifies budgeting but can mean more interest over a longer term and, if secured, puts the asset at risk.

A debt agreement (Part IX) is a legally binding arrangement with unsecured creditors to pay a percentage of what you owe, or to make payments over time, run by a registered debt agreement administrator. If you keep up the payments, the unsecured debts it covers are finalised at completion. A personal insolvency agreement (PIA) is more flexible, can cover secured and unsecured debts, and is proposed through a registered trustee; it may involve reduced lump-sum or periodic payments or surrendering assets in return for release.

Bankruptcy is the last resort: a legal status for individuals who cannot pay their debts, entered voluntarily or on a creditor's petition, that releases most unsecured debts after the bankruptcy period but comes with a public record, asset sales and restrictions on travel, directorships and some employment.

Formal arrangements are listed on credit reports and public registers for set periods, and informal ones can still show if the creditor reports a default. Some variations freeze interest and fees; others simply extend the term and increase the total cost. Secured lenders keep the right to repossess if you default on a secured debt, and formal insolvency can require assets to be surrendered.

Cancelling or reducing business-related debt can also have tax consequences, so check with the ATO or your accountant. Firms that charge a fee for debt management services must hold an Australian credit licence with a debt management authorisation and be AFCA members; financial counsellors, lawyers and registered trustees are exempt, so check ASIC Connect's professional registers before paying anyone. Using a payday loan to bridge a gap usually makes the problem worse.