Struggling Australians sign up to a record-level of debt agreements

CASH-strapped Australians who are racking up credit card debts, utility bills and school fees are among those turning to debt agreements in their droves.

Consumers are being urged to steer clear of these types of repayments unless it is their final option to get themselves out of debt.

New statistics released by the Australian Financial Security Authority yesterday shows debt agreements — a low-cost alternative to bankruptcy for individuals on a lower income or with little or no assets — has hit its highest-ever level.

They rose by 1.9 per cent in the 2014-15 financial year to almost 3000.

One of the nation’s largest debt collection agencies, Prushka’s general manager Lyston Thayer, said debt agreements should be used as a “last resort.”

“It goes on your file and can have an impact of obtaining finance in the future,’’ he said.

“People most commonly use them for credit card debts or they can’t pay vet bills, childcare fees or tuition fees and utility and telco costs.’’

Debtors entering a debt agreement cannot earn an after-tax income that is more than $80,480.40 and unsecured debts cannot exceed $107,307.20

These types of arrangements can be flexible but often include lump-sum payments or period payment schedules.

Financial Counselling Australia’s chief executive Fiona Guthrie said there were better options available than debt agreements.

“If you don’t comply with a debt agreement your creditors can move to bankruptcy,’’ she said.

“I would urge people to get independent advice about whether it’s the right option for them and seek to pursue other options such as hardship arrangements with their creditors.”

The figures also found bankruptcies climbed in the June quarter — jumping by 9.3 per cent compared to the same quarter in 2013/14.

However year on year bankruptcies fell by 7.7 per cent and personal insolvency agreements increased by 2.9 per cent.

In 2010 new laws were introduced that increased the minimum debt amount a creditor could issue a bankruptcy notice from $2,000 up to $5,000.

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