It’s no secret that some people are doing it tough right now. We know that people may be tempted to enter into financial hardship arrangements such as debt consolidation or a debt agreement as a way of relieving financial stress. But some of these arrangements can have serious consequences and there may be other options.
In a financial hardship arrangement, a lender agrees to a reduced repayment schedule for a period of time when a borrower is experiencing financial hardship. Most creditors, such as lenders, telcos, and utility providers have hardship provisions available if you are having problems paying your debts.
From 1 July 2022, most lenders can flag your credit report that a special payment arrangement is in place for a period of time as a result of financial hardship. On a positive note, as long as you stick to the negotiated payment arrangement, your credit history will show you have met your repayment obligation, as opposed to having a black mark against you for not meeting the original contracted repayment amount.
Financial hardship arrangements stay on your credit file for 12 months but the new credit reporting rules mean it shouldn’t affect your credit score. This article outlines financial hardship options and what you need to know about them.
A Debt Agreement is a formal arrangement under Part IX of the Bankruptcy Act, where your creditors agree to accept part payment of the debt in equal proportions, for example, they all agree to accept 90% of the debt as full and final settlement. There are some debts that cannot be included, such as fines or student loans.
In very limited circumstances, a debt agreement can be an effective option, but due to the serious consequences, most people may be better off considering other options.
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An informal debt agreement is a debt management plan between you and your creditors, similar to a Part IX debt agreement, but with limited impact on your credit file. Debts are typically paid off in 3-5 years. This type of informal arrangement is organised and administered by debt administration businesses, for a fee. Often a very hefty fee.
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Debt consolidation involves rolling your current debts into a single loan, typically a personal loan. If you have a home loan with equity in your property, you may be able to pay out other debts by increasing your mortgage.
This could be an option if your financial difficulty was a result of an isolated event and your circumstances have now changed for the better, for example your spouse lost their job but is now working again. However, if financial issues are ongoing, you could just be exacerbating the problem.
Be very careful about rolling unsecured debts, like credit cards, into a secured loan, such as a home loan. If you are not disciplined and something goes wrong, your home could be at risk.
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Unlike financial planners or advisers, who help people build wealth, for a fee, financial counsellors help people experiencing financial difficulty. Their services are free, independent and confidential. They can provide advice about your financial situation and recommend the best option for you to deal with unmanageable debt.
Financial counsellors can help you make payment arrangements with your creditors, and can also help you put strategies in place so you are less likely to find yourself in financial difficulty again.
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The takeaway here is, if you find yourself in financial difficulty, before it gets any worse, and before you spend any more money, contact a financial counsellor. They are free, independent, confidential, and will have your best interests at heart.
To learn more about financial counsellors read our newsletter article Financial advisers, planners and counsellors: What’s the difference and why does it matter?
To speak with a free financial counsellor contact the National Debt Helpline on 1800 007 007, visit their website at ndh.org.au, or contact us here at the Centre.
Super can be much harder to quantify if you are a member of MSBS or DFRDB, known as defined benefit schemes. This is because the bulk of your super benefit will likely be in the form of a lifetime indexed pension, based on your years of service and final average salary. The longer you stay in Defence, the larger your lifetime pension. This cannot easily be compared to a standard accumulation super fund. Please contact the Commonwealth Superannuation Corporation (CSC) for an estimate or your current benefit.
If you have an accumulation super fund, like ADF Super, it’s much easier to compare the superannuation you get from Defence with that of a civilian employer. Generally employers pay super at a rate of 9.5% of your ordinary salary and allowances, Defence pays super to accumulation fund members at a rate of 16.4%, well above the minimum requirement.
You may not appreciate the value of your generous superannuation benefits now, but you certainly will in years to come.
ADF members receive, statutory death and invalidity cover, and rehabilitation services if needed. To replace this cover in civilian employment, you may need to take out personal insurance, such as death, disability, trauma and income protection. The cost would depend on your age and personal circumstances but could cost thousands of dollars a year.
The ADF offers free education and training and/or study assistance schemes. If you’ve been receiving tertiary education at no cost or received any form of study assistance, consider what it might cost to continue your education outside Defence.
Take some time to think about these and any other benefits provided to you by Defence to get a better understanding of the real value of your employment package.
As an ADF member you will usually receive subsidised housing or rental assistance if you are not living in your own home. If you buy a home to live in you may be eligible for a range of other assistance schemes.
If you are receiving rental assistance you can calculate the value by multiplying the fortnightly assistance amount by 26 to get an approximate annual benefit.
If you’re in service housing you can estimate your benefit by deducting the rent contribution taken out of your pay, from the amount of rent you would pay each fortnight for a similar property in the same area. Multiply the result by 26 to estimate your annual benefit.
Housing assistance schemes for members buying a property include the Defence Home Ownership Assistance Scheme (DHOAS), Home purchase assistance scheme (HPAS) and Home purchase or sale expenses allowance (HPSEA)
Serving ADF members receive a range of healthcare benefits, including free medical and dental treatments, rehabilitation services, psychological support and access to fitness facilities like gyms, pools and sporting fields.
To put a value on these benefits, think about what you might be paying for if you were not an ADF member. For example, what would it cost you for private health insurance, prescriptions, physiotherapist, dentist, specialist visits, gym membership or other fitness related costs?
Medicare covers the costs of being admitted to hospital as a public patient, some of the fees charged by GPs and other medical professionals, and subsidised prescription costs for medicines listed on the Pharmaceutical Benefits Scheme (PBS). ADF members don’t pay the Medicare levy, currently 2% of taxable income.
Private health insurance covers some or all of the cost of a range of services not covered by Medicare, for example, a private hospital and the doctor of your choice, as well as ancillary services such as dental, optical and physiotherapy, not covered by Medicare.
Your pay consists of a base salary, with the addition of employment-related allowances. Your base salary can be found at the top of your payslip on the right, listed as ‘Annual salary’. If you need help reading your payslip, see the ADF guide on Pay and Allowances.
Note: From 13 May 2021, service, trainee, reserve and uniform allowances will be rolled into a single ‘Military salary’.
The earnings section of your payslip lists any allowances you receive. The amount in the ‘Current’ column is the amount you get every fortnight for each allowance. You can add allowances by typing in the name of the allowance in the ‘Add allowance’ box and clicking the + symbol.
A deployment provides some ADF members with additional allowances that are not part of regular pay. We have not included these allowances in the calculation of your remuneration package, however, you may want to take the additional deployment allowances into account if you are comparing your ADF remuneration with civilian employment.
Medium-term goals are those that you want to achieve in 3-6 years. This could include saving for a home deposit, paying off your car or paying down all your loan debts. Having a budget and your goals written down.
Long-term goals are plans you want to achieve in around 7 years or more. This could include buying a home or paying off your mortgage, paying for your children’s education or saving for retirement.
For long-term goals think about investing some of your money. Get some financial advice to work out a good investment strategy to reach your goals.
Be financially fit from ADF Consumer Centre on Vimeo.
MSBS is a hybrid defined benefit and accumulation super scheme which closed to new members on 30 June 2016. If you are an MSBS member, your benefit will consist of a lifetime indexed pension (employer component) based on your final average salary and years of service. Some or all of this benefit can be taken as a lump sum when you have met a condition of release (the defined benefit). The scheme also has a member component made up of your compulsory and voluntary personal contributions, ancillary contributions and investment returns, that you will also receive as a lump sum when you have met a condition of release (the accumulation benefit).
The pension component can be taken from age 55. If you are retiring or resigning from the ADF after reaching age 55 or are entitled to a Class A or Class B invalidity pension, you will be eligible for a pension when you leave the Service. For all other members, your employer benefit will freeze and be preserved, increasing with CPI each year, until you are eligible to receive it.
The member component of your benefit may be left in MSBS, where it will increase with investment returns each year until you access it, or it can be rolled over to another complying super fund.
For more information contact the Commonwealth Superannuation Corporation (CSC).
If you joined the ADF for the first time after 30 June 2016, you will fall under the ADF superannuation arrangement, and will be a member of an accumulation fund, such as ADF Super. If you had previously served, and are a member of MSBS, you will be re-entered into MSBS on rejoining the Service.
For accumulation fund (eg. ADF Super) members, your benefit will be a lump sum based on contributions and investment returns. When you leave Defence, your money can be left in the fund, where it will continue to grow with investment returns until you meet a condition of release, or it can be rolled into another super fund.
If you’ve been in the Service for more than 12 consecutive months, you can keep your ADF Super account when you transition out and your new employer can contribute to ADF Super. In this case your insurance cover will change so contact the Commonwealth Superannuation Corporation (CSC) to find out what you need to know.
DFRDB is a defined benefit super scheme which closed to new members on 30 September 1991. If you are a DFRDB member, you will receive a lifetime indexed pension based on your final salary and years of service. Part of your benefit may be commuted into a lump sum, and you may receive an additional lump sum from your MSBS ancillary account, made up of voluntary personal contributions, amounts transferred in from other funds and other contributions, plus investment returns.
For more information contact the Commonwealth Superannuation Corporation (CSC).
Short-term goals are things you want to achieve within the next couple of years. These goals could be to pay off your credit card debt, buy a new TV, go on a holiday or buy a car. Whatever you have in mind, set yourself a realistic timeframe. The best way to save for short-term goals is to reduce your spending on non-essential items, like entertainment, dining out, memberships or subscriptions. It is often easier to stay on top of your spending if you use cash, EFTPOS or a debit card when shopping instead of using your credit card.
Make your savings work for you by putting your money into an account where it will grow. Savings accounts are great because you can earn compound interest on your savings. If you’re on a low income, you may qualify for one of the savings programs offered by some charitable organisations.