By Natalie Cameron, Lead Ombudsman, Banking and Finance

Does thinking about your finances give you that sinking feeling? You’re not alone.

Financial hardship can happen to anyone, often unexpectedly. It could result from job loss, a medical emergency or other circumstances affecting your ability to meet obligations like loan repayments.

Here at the Australian Financial Complaints Authority (AFCA), we saw an 18 per cent rise in complaints involving financial difficulty in 2023-24. About a third of the more than 5,700 financial difficulty complaints were in relation to home loans. It’s an area we continue to monitor closely.

Financial difficulty is often temporary, and support may well be offered by your lender. However, a report by the Australian Securities and Investments Commission shows that 30 per cent of people would be reluctant to actively ask for hardship assistance. Perhaps there is a lack of awareness about the options and, let’s face it, asking for help can be hard.

As an ombudsman service that helps resolve complaints between lenders and borrowers, we know that seeking help early can provide crucial relief and protect your credit score.

It is not about deferring the inevitable if you cannot repay your debts. In many cases, though, a review could result in adjustments that bridge the gap until you are on more solid financial ground.

My message to consumers is that the earlier you act, the more options will be available to you. There’s a message for lenders, too: that they should work to identify and respond to customers in hardship and give genuine consideration to providing support that’s tailored to their customer’s individual circumstances.

The benefits of asking for help

Banks and other lenders have various hardship assistance options aimed at providing temporary relief, depending on your circumstances, which could give you time to recover. These can include deferring loan repayments, checking you are on the best loan terms, capitalising missed repayments (adding them back onto the loan), or extending the loan term, where appropriate.

By seeking help early, you have the best chance of avoiding falling into deeper financial trouble. Delaying action can lead to missed payments, additional fees and a damaged credit history – not to mention the mental toll of spiralling debt.

Engaging with your bank early helps you manage your finances more effectively, preventing long-term consequences and demonstrating your financial responsibility as you seek to keep up with payments.

Protect your credit score

Contrary to popular belief, requesting hardship assistance does not hurt your credit score. In fact, your report will show that you maintained regular repayments under the new arrangements with your lender. That is a positive for your credit score and a much better outcome than a missed payment.

While your credit report will note a hardship arrangement, it will not include the reason for it or any financial details. The information will be permanently removed after 12 months.

If you apply for credit within those 12 months, a lender may simply ask more questions about your situation to make sure you won’t be put under new financial stress.

Just ask

Facing into financial stress can be challenging, but also often brings relief. By asking for help early, you can benefit from tailored relief measures without worrying about your credit score.

Proactively managing financial hardship can lead to a more stable and secure financial future. And fewer sleepless nights.

If you don’t receive the help you expected, you have the right to complain to your lender and have your case reconsidered.

If you remain unhappy, you can come to AFCA as an independent ‘umpire’. Among other things, we can consider complaints related to credit and financial difficulty, including credit reports. Our service is free for consumers and small businesses, and in most cases we will be able to work with you and the lender to reach agreement. Failing that, we can make a final decision that, with your agreement, is binding on the lender.

Remember, help is also available from a free financial counselling service like the National debt Helpline on 1800 007 007 or at ndh.org.au.