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Unemployed and in debt

hardship imagePaying back loans with no job can seem like an impossible task. If you become unemployed, you are likely to be quite stressed anyway. But if you have large outstanding debts - such as a mortgage or a car loan - this can sometimes make the situation seem unmanageable. 

However, the situation doesn’t have to mean the end of the world. There are a number of practical steps you can take to get back on track, avoiding any serious, long-term consequences.
The most important thing is to take proactive steps early so that the situation doesn’t get out of hand. This not only means managing your expenses and tightening your budget, but also talking to your lender and letting them know what the situation is.

Financial hardship is a common thing for people to go through during the course of a loan - particularly a large one like a home loan. Banks and other lenders understand this and they have a lot of experience in helping borrowers get back into a position to make their repayments. It’s important to remember that this benefits lenders as well, so you shouldn’t be afraid of letting them know about your situation.

But there are a number of other things that you can also do if you lose your job with outstanding debt. This article will take you through the different things you can do to ensure you stay on top of your finances and get back to paying off your debt as quickly as possible. Everyone’s situation is different, and any advice in this article is general in nature. You should consider whether it is appropriate for your circumstances.

Unemployed and in debt - what to do?

Here are our key steps for what to do if you lose your job and still have debt.

1. Work out your finances

The very first step you need to take if you become unemployed with outstanding debt is to take stock of your financial position. Hopefully, you will have a good idea of this already. But even if you do, now is the time to be extra clear about what is coming in and out of your bank account. Taking this step is critical for two reasons.

Firstly, you need to give yourself a clear idea of where you can trim unnecessary spending. By going through your bank statements, you can work out which kinds of purchases are hurting you the most. You don’t necessarily want to start stressing over every fifty cents, but you do want to make changes that are going to have the greatest impact. Things you may want to look at are:

  • Eating and drinking out
  • Premium groceries
  • Expensive entertainment
  • Unnecessary travel 
  • Gas and electricity consumption 
  • Expensive sport or hobby classes
  • Gym memberships
  • Expensive rent

The second reason you need to be clear on your financial position is that you may need this information to talk with your lenders, or a credit counsellor. If you are going to be unable to continue to meet your minimum repayments, lenders are going to want to know exactly how much you are able to pay. Likewise, a credit counsellor will definitely need this information to give you proper assistance. We will talk about these possibilities below.

2. Make changes

The first and most obvious change to make is to cut spending. Once you have worked out your pattern of expenses, trim those luxuries you don’t need. Some of these things may be really difficult. For example, moving into accommodation with a lower rate of rent can really disrupt your life. Decisions like this obviously need to be taken on balance with your individual situation.

If you are not facing an immediate crisis, it may be appropriate to taper down your expenses gradually. But make sure you stay ahead of your debt - don’t react to it. That means cutting expenses before they become a problem. | Greater Bank

Another important strategy could be to pay off smaller sources of debt as quickly as you can. That means paying off your credit cards in particular. If you are building up interest on multiple lines of credit, you are going to be under a lot more pressure. 

3. Speak to a certified credit counsellor

A credit counsellor may come from either a paid service, or one provided for free by the National Debt Helpline. A credit counsellor is there to give you advice specific to your financial position. You can talk to a credit counsellor long before you are in serious debt trouble, so you shouldn’t think it’s a big step. 

A credit counsellor can give you advice to help you pay back your debts, or they may actually help you come to a temporary agreement with your creditor. If you need to go into a formal debt agreement, personal insolvency agreement, declaration of intent, or bankruptcy, they will also be able to assist you. You can learn more about these options below.

4. Speak to your creditor

Although it’s good to speak to a credit counsellor, you can go straight to your lender to let them know about your situation. Lenders are usually willing to enter into a number of different arrangements to assist you in getting on top of your payments. It’s quite common for borrowers to suffer some form of hardship during the course of a loan - not only from unemployment - and so lenders usually have good systems in place to help.

Greater Bank will always assess borrowers’ situations on an individual basis. Assistance can be offered for short-term difficulties with repaying debt, as well as medium and longer term periods. Some of the options that Greater Bank offers its borrowers in times of repayment difficulty include:

  • Using advance funds on a loan (if available) to take a ‘repayment holiday’
  • Converting to an interest-only repayment schedule for a set period
  • Moving to a new repayment arrangement
  • Deferring or reducing repayments for an agreed period of time

Sometimes an agreement for relief can be reached informally, or other times further information may be required. For example Greater Bank sometimes asks borrowers to complete a Statement of Financial Position and supply documentation such as proof of income and expenditure, bank statements or medical information (depending on the reason for which relief is being sought).

Greater Bank will also stop all collections activity - such as reminders for repayments - while your situation is being assessed. If a form of assistance is agreed upon, Greater Bank will not start any collections activity during the agreed period of assistance. Not being pressured for money when you have lost your job can really be good for your mental health - another reason why being upfront with your lender is a good idea.

An important thing to remember is that it’s usually a better outcome for both the lender and the borrower if a temporary agreement is reached. This is because the lender is often much more likely to recoup the full amount of the debt, and also because it will save them money and administrative resources in pursuing legal action. Reaching equitable solutions is also much better for a bank’s reputation.

The most important thing is to be up front with your lender. Greater Bank encourages borrowers to let them know as soon as possible if they are suffering financial hardship. The earlier your lender is aware of your situation, the more options you will have available to you, and the easier it will be to make arrangements.

I can’t pay my debts - further options

If you are unable to meet your debts after talking with your creditor(s), there are a number of legal options open to you. Each option is laid out in the Australian Bankruptcy Act (1966). Despite the name of the Act, most of the options do not involve bankruptcy. 

Formal debt agreement

A debt agreement is a legally binding contract between you and all of your creditors. In a debt agreement, you agree with your creditors to pay back a certain percentage of the combined debt that you hold with them. The agreement usually lasts between 3 and 5 years. 

The debt you repay is not paid individually to each creditor, but is paid to a debt agreement administrator. The debt agreement administrator can only be someone who has been legally certified and registered with the government. 

Once you pay back the amount stipulated by the debt agreement, you are no longer obliged to pay any more money to your creditors. This effectively means they are cutting their losses. The reason why lenders agree to debt agreements is usually that they believe they can get more money from their debtor than they would if the debtor went bankrupt. 

To be eligible for a debt agreement, your unsecured debts must not exceed the maximum set by the Insolvency and Trustee Service Australia (ITSA). You are also not eligible if your income or assets exceed the ITSA maximum. These maximums are updated twice each year. As of March 2020, the maximums are as follows:

Maximum unsecured debts


Maximum assets


Maximum after-tax income


Personal insolvency agreement

A personal solvency agreement is similar to a debt agreement. The main difference is that it has no eligibility requirements, which makes it an option for people with very high debts, high income, or high-value assets.

A registered trustee is appointed by the debtor to manage their assets. As in a debt agreement, the trustee deals directly with the creditors to reach an agreement for full or partial repayment. There is no time limit on the repayment schedule.

Once again, creditors cannot make further claims against your wealth or assets when the personal insolvency agreement comes to an end.

Declaration of intention (DOI)

A declaration of intention is a step that you would take if you need a little bit more time to make a decision about what to do with your outstanding debt. It allows you 21 days to make a decision.

During this time, unsecured creditors are not able to pursue you for outstanding debt.

However, secured creditors are able to repossess secured assets if you are unable to make repayments during the 21-day period. Another consideration is that, if you lodge a DOI, a creditor can use this as evidence in an application to the court to make you bankrupt.

If at the end of the 21-day period you decide to not take the option of bankruptcy, both secured and unsecured creditors can pursue your debts.


Bankruptcy is obviously a very extreme option to have to take. If you opt to declare bankruptcy, any secured creditors will have the right to repossess the security you have agreed to in your loan agreement. For example, for a mortgage, your creditor will take ownership of your house.

Most unsecured debts will be wiped clean, though. These debts include unpaid utility bills, unpaid rent, and unpaid medical, accounting, or legal fees.

However, some unsecured debts cannot be waived. These include court-imposed fines and penalties, HECS and HELP debts, and child support.

As in a debt agreement or personal insolvency agreement, a trustee will manage your assets and deal with creditors. The trustee will either be a representative of the government or a registered professional that you appoint yourself.

Getting back on track

Some of these options can seem pretty daunting if you have just lost your job and are struggling with debt repayments. But most situations in which a person loses their job with large amounts of debt are still quite manageable.

The most important thing is to deal with the situation as early as possible. In particular, you need to talk to your lender as soon as possible. It may not seem like it, but your lender is probably your best source of help when you are struggling to make repayments.

Lenders like Greater Bank understand that hardship is a normal thing - and it happens to anyone, no matter what their situation is. So, take action early to find an arrangement that gets you back on track with your debt as soon as possible.

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