What to do if you are struggling with debt

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It is important to get help quickly. As well as letting your lender know that you are struggling it can also be a good idea to speak to a budget adviser for their practical guidance.

Talk to your lender

Lenders will often want to help borrowers who are in difficulties, so they get back on their feet and continue paying their loans back in future. Ask them if they will change your loan terms to help your situation. For example by extending the length of your loan or reducing your payments.

Your lender does not have to make changes to your credit contract but they are required to act reasonably and ethically when problems arise.

Making a hardship application

By law you have the right to ask your lender for a change to your personal loan, mortgage, credit card or other consumer credit contract, if you meet the following criteria:

• you have suffered a hardship you couldn’t reasonably have seen coming, such as illness or injury, loss of employment, the end of a relationship, or death of a partner or spouse
• as a result of that hardship, you cannot reasonably meet your debt repayments
• you believe you would be able to meet your debt repayments if the contract was changed in the ways specified by the law (see 'What changes can be made?').

You can discuss changes to a contract anytime with your lender, but if you make a hardship application (by meeting the above criteria) a lender must consider it and follow specific processes required by law.

When can I make a hardship application?

It is important you contact your lender quickly if you cannot make your debt repayments as you have a limited time to make a hardship application.

You can make a hardship application at any time, unless you:

• have been in default for 2 months or more
• have been in default for 2 weeks or more after receiving a repossession warning notice or Property Law Act notice
• have failed to make four or more consecutive debt repayments on their due dates.

You can only make one hardship application on the same grounds within any 4 month period, unless the lender agrees to consider another application. If you catch up on the debt repayments and defaults, you are entitled to make a hardship application again.

What changes can be made?

You can ask for a contract to be changed by either:

• extending the term of the contract and reducing the amount of each payment
• postponing debt repayments for a specified period of time (a payment holiday)
• extending the term of the contract and postponing debt repayments for a specified period of time (a payment holiday).

While these options will provide temporary relief, they are likely to increase the total amount owing on a loan.

You cannot seek changes that are more extensive than is necessary to enable you to meet your obligations under the credit contract. The changes asked for must also be fair and reasonable to both you and the lender when all the circumstances are taken into account.