Brokers may be working with clients who want to refinance, consolidate debt or buy a home, but existing debts or financial pressure are making their situation more complex.
Higher living costs, interest rates and unsecured debt can put additional pressure on clients. For some, addressing their debts before applying or reapplying for a loan could help put them in a stronger financial position and create more lending options in the future.
In a recent MA Money webinar, Paul Liccione, NSW and ACT BDM at MA Money, was joined by Kitty Thomas, founder and director of Debt Angel Solutions, to discuss how debt negotiation works, which clients may benefit and how brokers can support clients who need help getting their finances into a stronger position.
When debt becomes a barrier to lending
Mortgage brokers often meet clients who have a clear goal, such as refinancing, buying a home or investing, but their current debt position makes finance difficult.
Some may have multiple credit cards or personal loans. Others may be managing ATO debt, buy now, pay later accounts or repayments that have become difficult to maintain. These clients may still have options.
Rather than the conversation ending because finance is not suitable right now, brokers can consider whether specialist debt support could help the client improve their position first. That can give the client a practical next step and help the broker maintain the relationship for when the client is ready to revisit their lending options.
What is an informal debt arrangement?
An informal debt arrangement is different from a formal Part IX debt agreement.
Debt Angel Solutions works directly with creditors to negotiate arrangements based on the client’s individual circumstances and financial capacity. Depending on the situation and creditor, this could include:
- reduced or frozen interest, fees or charges
- temporary payment arrangements
- loan variations
- longer-term repayment plans
- partial debt waivers or settlements
- strategies designed to improve cash flow and reduce overall debt.
The aim is to create a repayment approach the client can realistically manage while helping them improve their broader financial position.
Kitty also explained that informal arrangements can be adjusted over time. The strategy may change as the client’s financial position changes, rather than following a one-size-fits-all approach.
Helping clients build a stronger financial position
Debt management is not only about negotiating with creditors. Understanding how a client reached their current position is also important. This can include reviewing spending, income, financial commitments and money management habits, then helping the client build a practical plan.
For some clients, the challenge may be that their monthly expenses are higher than their income. Others may be using credit to cover everyday costs, moving debt between accounts or relying on short-term credit to manage cash flow. Identifying these patterns can help create a more practical approach to managing debt.
Debt Angel Solutions also focuses on financial education and ongoing support, helping clients understand their position and make changes that may improve their finances over time. That may include reducing expenses, building savings habits, increasing income where possible or changing how credit is used.
These steps can help create a stronger financial base before the client returns to their broker to explore their lending options.
How debt negotiation may support future lending
For some clients, reducing or restructuring existing debt may make a meaningful difference to their future lending position.
High levels of unsecured debt can increase monthly commitments and affect a client’s ability to service a new loan. Addressing some of these commitments first may help the client move towards a more manageable position before they refinance or apply for finance again.
This does not mean debt negotiation will be the right approach for every client. Each situation will depend on the client’s financial circumstances, creditors and longer-term goals.
The key for brokers is recognising when existing debt may need to be addressed before progressing with a lending solution.
Where brokers can play a role
Brokers are often well placed to identify when a client could benefit from debt support. For example, a client may have significant unsecured debt, repayment history issues or financial commitments that make servicing a new loan difficult.
In these situations, referring the client to a debt specialist can provide another path forward. Once the client has worked through their debt strategy, they can return to their broker in a better position to consider finance or refinancing.
Kitty also discussed situations where a client has equity in their property alongside significant unsecured debt. Depending on the circumstances, a broker and debt specialist may be able to work together to explore how that equity could form part of a broader strategy.
What brokers should look for
There are several situations that may prompt a broker to consider whether a client could benefit from specialist debt support.
These may include clients with:
- high levels of unsecured debt
- multiple credit cards or personal loans
- ATO debt
- missed or late repayments
- financial hardship
- significant monthly debt commitments
- difficulty meeting existing repayments
- limited lending options because of their current debt position.
Importantly, clients do not necessarily need to wait until their financial position becomes more difficult before exploring their options. Identifying the issue earlier may give them more time to understand what support is available and decide on their next steps.
More practical insights from the webinar
The webinar also covered real client case studies, ATO debt, credit reporting, debt negotiation fees and common questions brokers may have when referring clients for specialist support.
For brokers working with clients carrying significant debt, the key message is simple: a lending solution may not always be the first step. Sometimes, helping a client improve their debt position first can create more options later.
Want to learn more?
Watch the full webinar to hear more from Kitty Thomas about informal debt arrangements, creditor negotiations and practical debt strategies.
You’ll also see how brokers can identify clients who may benefit from specialist debt support and how these strategies can be applied in real client conversations.
Watch the webinar to find out more and see how you can apply these strategies with your clients.
