Do you find debt confusing?
Don’t worry, you’re not alone. Even just the word debt can strike fear in people. However, debt is a common part of people’s lives.
There are lots of different kinds of debts and different reasons to go into debt. Some of these might be planned, like buying a house and paying off your mortgage debt. Other debt you might encounter is not as planned out and might occur from a delinquent customer to your business.
Whatever the reason for your debt, today, we’re going to attempt to debunk some of the most common myths and misconceptions we hear about debt as professional debt collectors.
Common misconceptions, myths and misinformation we hear about debt
1. Going into debt means your possessions will be taken away from you
Gone are the days of an aggressive debt collector pounding on your door to get your furniture and any item they can get their hands on to make your debt even.
Take a deep breath and relax – if you’ve fallen behind in repayments and have debt collectors trying to contact you, they aren’t interested in taking your property.
Rather, they are interested in finding a solution where you can realistically pay off your debts and still be able to live a normal life.
It’s not easy to seize people’s assets either, at least not just because you have a debt. Rather, the question of whether your assets may be seized usually only comes up if you declare bankruptcy.
When you declare bankruptcy, a trustee is appointed to manage your bankruptcy, and depending on the assets that you have, like property and vehicles, these may be sold to pay off your debts (depending on their value and your ongoing needs). The aim is to help you pay off your creditors, wipe your debts clean, and still be able to carry on your normal life.
But this doesn’t just happen if you’re in debt. No matter the reason for being in debt, people are dealing with problems of their own to varying degrees. There’s simply no reason why you should be worrying yourself sick about something that will most likely not happen.
2. You can be criminally charged for being in debt
Do you think that having debt is a crime? It isn’t. You won’t go to jail and you’re not going to get a criminal record just because you owe money.
Though if you owe money and you’re missing out on making payments, this can affect your credit score, which can impact your future ability to borrow money in the future.
Whilst you’re not going to be charged for being in debt, it doesn’t mean that having someone contact you regarding your unpaid debt isn’t scary. If you find yourself in a situation where you are struggling to make repayments on your debt it’s a good idea to get on the front foot and speak to the companies or people that you’re in debt too.
You may be able to work with them to restructure a payment plan to make it more manageable for you. You could also consider seeking financial advice. If you have multiple debts, it might be worth consolidating your debt so you have one manageable repayment to make.
One thing to keep in mind, while you’re not going to be going to jail for debt, if you do not advise your creditor of your payment issues, they may have a debt collection process that could involve them advising you that they plan to take legal action to recover the money. This is why it is a good idea to talk to a professional or your creditor to make an achievable repayment.
3. People who live beyond their means go into debt
There is a very common misconception that people go into debt because they are living large and well beyond their means. And while people living a champagne lifestyle on a beer budget are out there accumulating debt and running into money problems, often the reasons people end up in debt is often due to reasons beyond their control.
For example, these are three very common reasons people end up in debt:
- They may lose their job, or in recent years, have experienced job casualisation. For anyone with a stable source of income, it is only normal to make financial decisions much easier when you know that you can pay it off in due time. Perhaps working overtime a couple of hours a week will make do for the monthly payment of a car but there might have been changes within the company and all of a sudden working overtime isn’t possible anymore. Without overtime pay, it will be hard to make ends meet while you still have a car that isn’t fully paid.
- Sudden ill health is another factor. No one chooses to get sick, but these things happen to almost anyone. Treating yourself or a family member is never cheap and could become costly.
- Another common reason why people end up in debt is the end of a relationship. Going through a divorce or separation with your spouse can be traumatizing and could negatively impact your finances. What once was a two-income household suddenly becomes one, and if you have a child or children to raise, your finances will surely be affected.
4. Once you’re in debt, it’s basically impossible to get out of it
We’re not going to lie and say that getting out of debt is super easy. It does take time and dedication.
You need to understand the reasons for the debt. It could be from losing your job or from poor spending habits, or perhaps your business is suffering from customers or clients who are not paying you for goods or services you have supplied.
Once you know the cause of the debt, you also need to understand the real size of the debt and the position you’re in. A lot of people do like to bury their head in the sand when it comes to debt, which is understandable, it can be overwhelming to face. But the more you know means the more you can plan.
Some things you might consider if you’re in debt is using a professional financial advisor service, if your business has outstanding debts from delinquent customers you could hire a debt collector to help you, you could look at the processes of your business (more on this in a moment), you could consider debt consolidation or in extreme cases, you could consider declaring bankruptcy.
It’s not impossible to get out of debt but you do need to be prepared to make sacrifices and face the music.
5. Debt in your business is a disaster
We touched on this above, but perhaps you’re finding yourself in a position where you have a number of outstanding payments owed to you by clients or customers, and this is now impacting your ability to pay your own bills and even your staff.
Now, when you have a business, debt is most certainly a normal part of the process, but there are good debts and bad debts. Good debts could be business loans that you take out to expand your business, a bad debt is one that is owed to you by a customer and it is overdue.
We also mentioned earlier how there are many reasons why someone can end up in debt, which is also very true when it comes to a customer paying you for your goods or services. You may not realise that this is a form of debt, but if someone isn’t paying you, that is a debt you’re owed.
Debts like these can cause problems for businesses, especially if you are operating on low margins. There are some things you can do to ensure you’re being paid for what you’re prvoiding though. These include:
- Have a robust accounts receivable team or process in place
- Make debt collection a priority
- Do your research on potential customers and clients before committing to working with them
- Update your terms and conditions and payment agreements – especially if you’re regularly having problems with customers paying you.
- Hire a debt collector to take care of your outstanding debts.
Debt can be complex, especially when you try to manage it all on your own.
If you have a small to medium sized business in Australia and you find yourself struggling to collect payments from your customers, then why don’t you save yourself the time and hassle and work with us here at JMA Credit Control?
We offer debt collection services to businesses Australia-wide, so whether you’re in Melbourne or out in the middle of nowhere, you can get in touch with us, and we can help you take control of the debt in your business and get you back on your feet.