A couple of things worry us about the increasing number of Australians getting into financial strife.

Firstly, we’re getting reports that some financiers are getting quite aggressive with people who are falling behind in their loan repayments. Much of this is due to the higher repayments needed when forced to switch from interest-only to principal-and-interest loans.

The other worry was numbers coming out of the National Debt Hotline showing a huge increase in calls for help and the continuing boom in so-called payday loans which, while better regulated now, still charge very high interest rates. These are small loans to tide someone over until the next payday so they can buy essentials or meet a repayment on another debt.

It shows how tough it is for so many people in a financial crisis. Short-term high-interest loans are often a last resort for people who have run out of options. The combination of tighter lending requirements and low wage growth are putting more and more people in a financial vice.

Not to mention the emotional stress on relationships that potentially can tear families apart. Often people in this situation feel isolated and don’t know where to turn for assistance.

We’re huge fans of organisations like financial counsellors associations in each state (www.financialcounsellingaustralia.org.au), the Salvation Army’s Moneycare team and many other not-for-profit organisations giving advice to those who need financial help.

They do a wonderful job because they help people get out of financial trouble with solid advice and will even work with the financier to sort things out.

Most people who get in to financial trouble try and hide and not ask for help. They hope they’ll be ignored.

That is the wrong thing to do.

The home mortgage, car loan and credit card debt are the three areas where most over commitment occurs.

All counsellors agree that the first rule in coping with mounting debt is to contact your creditors as soon as things become difficult and attempt to negotiate a compromise. Far too many people conceal their financial problems until the situation gets out of control.

The key is not to get emotional (we know that’s easier said than done) and to have a clear plan to follow.

With the help of counsellors and government consumer affairs officers, we have devised a six-point action plan to help deal with debt.

1. PRIORITISE YOUR DEBT
Have a clear understanding of what you owe … how much and the interest rate. Plan around working to get rid of the most expensive debt first which is usually credit cards and Payday loans.

2. NEGOTIATE PAYMENT TERMS
It is very expensive for creditors to start legal proceedings to recover a debt so they prefer to work with you on how to repay the money. But you have to make them feel confident that you will deliver on any promises. The better prepared you are with a strong plan of action, the more likely they will work with you.

3. CONSOLIDATE LOANS
If you have multiple loans and credit cards, try to consolidate them into one loan at the lowest interest rate possible. Work with a financial counsellor to make sure you limit exit fees from existing loans and ensure the new facility is the best for your circumstances.

4. ACCESS SUPERANNUATION UNDER THE FINANCIAL HARDSHIP PROVISIONS
In normal circumstances people are discouraged from withdrawing their super contributions either through onerous tax penalties or legislative barriers. However, super fund trustees are allowed to consider all claims of financial hardship and have the power to release all or part of the superannuation money without penalty. Substantial financial hardship must be demonstrated. It is not just a question of being forced to trade in the BMW for a Holden.

5. GET YOUR PLAN RIGHT
Getting help from others will depend on the quality of your plan, including:

• How much income you have coming in. Include take-home pay, any social security benefits and money from other sources.

• Work out essentials, like rent and mortgage, fuel and food. Don’t forget occasional payments and any luxury items.

• Balance expenses against income. Cut back costs, sell assets.

• Increase income. Find extra work, even if just temporary, or check if you can claim Social Security benefits.

• List all arrears payments, loans and credit commitments. Some debts, such as rent or mortgage arrears and credit arrangements, can cause more problems than others. Deal with these first.

• When you have a financial statement showing all income and outgoings, decide how much you can afford to pay off existing debts.

6. CONTACT YOUR CREDITOR
Explain your situation and make an offer. Try to reach an agreement about what you will pay.

While there is less stigma attached to bankruptcy these days, many counsellors will advise such action only as a last resort. Many will suggest as a Debt Agreement (Part IX), which is a formal agreement to pay creditors and is not as onerous as formal Bankruptcy.

But make sure this all discussed with a financial counsellor first.