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Case Study: A Solution To Struggling With Debt

On a high interest rate and swamped with repayments, Jack Delany was referred to a Finance Broker to try to find a solution. Unexpectedly, the solution didn’t just involve dollars and cents, but also a sensible re-education for the young property owner.

By all appearances, Jack Delaney was in a decent state, financially. In his early 30s, Jack was working hard, had owned a property for several years and had recently bought a new car.

When he was referred to an MFAA Approved Finance Broker to discuss refinancing his home loan to a lower interest rate, however, the reality of Jack’s situation came to light; he was being choked by cashflow problems and struggling to pay his bills.

“Initially, the conversation was about how we could improve Jack’s interest rate, because he was about 40-50 basis points above the market,” says his Finance Broker. “When we started looking at refinancing and serviceability and all the rest of it, we very quickly identified that he was close to being a credit threat.”

A refinancing application quickly revealed several defaults on Jack’s credit file, which Jack had thought weren’t relevant to his application and had not told his finance broker about. A frank discussion and a bit of investigation revealed why he had found himself in this situation.

“He had taken on some car finance that was really choking him, and was being left with just $400 each quarter to live on once his mortgage and car loan were paid,” Jack’s Finance Broker explains. “When we realised what sort of defaults he had against his name, it really became apparent that, as good as he was at his job, when it came to credit and taking out loans, no one had really educated him about the ramifications of not paying debt.”

The first course of action for Jack’s Finance Broker was to renegotiate the debts that had been registered, getting them paid out and changed from unpaid to paid defaults.

“We then had a look at how we could bundle that car loan up against the equity of the property, and stretch out the term of that loan so it wasn’t choking him anymore,” Jack’s finance broker says.

The new arrangement means that Jack now has $950 to live on each month once his bills are paid, which sets him up well to improve his credit record by getting everything paid on time, so that he can work towards refinancing to a prime product.

“The rate that Jack is on now is slightly higher, but we’ve been able to structure the loan in a way that we know the exit strategy, putting him back on track so that traditional lenders will actually have a look at him to provide him with a better rate and better products.”

Sorting out the dollars and cents isn’t the only role of a finance broker in a situation such as this though; Jack also needed to improve his financial literacy.

“We went through a fairly heavy re-education phase so he was aware of the ramifications with his lender if he was to default or didn’t make repayments, and would understand that he would find it difficult to reduce the rate he was on in the timeframes we had set, or to refinance out of the situation,” Jack’s Finance Broker says.

Part of that education was a referral to a financial counsellor. Jack is certainly not alone in this need for education, with his finance broker increasingly seeing young people who need a little extra help improving their financial literacy and getting themselves out of trouble.

“I would say that a lot of people aged below 35 are not aware of the ramifications of not paying bills, or paying back credit. So it might be a $5000 credit card they had when they were 20 and just one day stopped paying it. The collection guys stopped calling them and they just don’t realise that, one day, someone would want some money – it still exists,” he says.

If you have found yourself in a difficult financial situation, all is not lost. Contact us and we can review your position and help you restructure so you can get back on track.

*Clients’ names have been changed to protect their privacy.

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