Bad Credit: Knowing your direction

When you are listed with a Credit Default what hear from most clients is the uncertainty about how it will impact their lives. The unknown can be worse than the actual default. However, this is not in all cases and the severity of the impact is directly affected by the underlying need for finance. Let’s take a look at some examples:

Example 1

You are applying for finance to buy a property and have signed a contract of sale. Your application is put to a major lender, as you walked past a branch on your way to work. You have never had any issues with finance in the past so why would you expect issues now. Well, your finance has been rejected because of an issue with your credit file. On further investigation you find there is a credit default from an old phone bill, you didn’t know that when you moved carriers there was an outstanding bill as you had also moved address.

So, in this case, the need to obtain finance is very important especially if you have signed the purchase contract without a “finance clause” in the contract. If there is a finance clause you may still exit the contract if your application for financing your purchase has been declined. If you have purchased your property at an auction, then you won’t have a finance clause in place and you are in a position where you must source finance or lose your deposit. In this case, it is extremely important to obtain the right advice and we would recommend discussing your options immediately with us. You would be under contractual terms including dates to settle your purchase which need to be adhered to.

Example 2

You have had a health issue that has caused some issues with paying your debts; hence a credit default has been lodged for a credit card. Your mortgage is with a major lender on quite a good interest rate. You have a number of debts you are looking to pay, some have been conducted ok, and others are severely in arrears. The debts total approx. $65000 and you are back working. Ok, so there are a couple of things to consider here:

  1. How much equity is in your property?
  2. If we consolidated all your loans would your overall payment be less than you are currently paying?
  3. Are you in arrears with your mortgage?
  4. Is there a potential the creditors could apply for a creditors petition – i.e. a bankruptcy?
  5. Do you have the income to service the new loan?
  • If the answer is yes to any of the questions above, and you have equity then there would be the case to consider a debt consolidation loan and a lender would look favourably upon your situation.
  • If the answer is no to the above questions, and you have equity you may be open to high risk – i.e. creditors trying to obtain funds from the sale of your property.
  • If the answer to most questions is no, and you don’t have equity in your property then you may be better off under a part 9 unless you have no income, then you may be faced with bankruptcy.

Example 3

You have a single or a few minor defaults that have been referred to a debt collection agency. You have no assets, though have an income. In this instance, you can usually discuss payment options with the debt collection agency. As you have no assets it will be in their best interests to establish a payment arrangement to obtain their funds. It’s worth noting that debt collection agencies have usually purchased your debt, so their main intention is to obtain profit from their purchase hence payment arrangements can work well in these instances. If the debt is quite large the debt collector may seek other methods to obtain the funds, such as court orders and even bankruptcy. We have suitable professionals we recommend who may assist in these instances. Again we recommend discussing your options with us.

However, in all these cases I would recommend obtaining specialist bad credit home loan about your credit defaults, and the available finance option. Both these cases above require immediate action and we recommend discussing your options with us by calling 1300 796 850.