Having difficulty repaying debt?

You may have a debt problem if:

• You consistently run up charges to your credit card limit
• You use your credit cards as a necessity instead of a convenience
• You regularly borrow money to make it from one paycheque to the next
• You are only able to pay interest or service charges every month, and have trouble reducing your total debt
• Your creditors contact you for payment, threaten to sue or repossess your collateral, or hire a collection agency to recover the money for them

If you're having trouble making your loan payments - or you foresee having trouble soon - it's important to take action right away. Debt problems can grow quickly if ignored.

• Tell your lender that you're experiencing financial difficulty. In many cases, lenders may be willing to examine your situation and work with you to help resolve the problem. For example, you may be able to extend the term of a loan or arrange to postpone repayments for a temporary period.
• Pay off your debt as much as you can each month, at least pay the minimum you owe on each loan as this will protect your credit score. If you can afford to pay more, pay the loan with the highest interest rate first.
• Prioritise secured debts like your mortgage over ongoing payments on unsecured debts like credit cards, so you don't risk your home being repossessed.
• Review your budget. Are there any non-essential expenditures you can cut or delay to help pay off your debts?
• Consider consolidating your loans, lines of credit and credit card balances into a single loan with a set repayment schedule. By consolidating or refinancing loans, you may be able to save on interest charges and manage your debts with one single payment.
• Seek assistance and advice. Facing up to debt can be a challenge. For free, confidential help and financial advice, consider contacting the following centres for support:
  
  
  • Official Receiver's Office
    Tel: (852) 2867-2448
    
  • Caritas Family Crisis Support Centre
    Debt and Financial Capability Project
    Debt hotline: (852) 3161 2929
    Website: http://fcsc.caritas.org.hk
  • Tung Wah Group of Hospitals Healthy Budgeting Family Debt Counselling Centre
    Tel: (852) 2548 0803
    Website: http://fdcc.tungwahcsd.org

If you are struggling with many debts that are no longer manageable through simple regular repayments, you may consider consolidating your debts such as loans, lines of credit and credit card balances into a single loan.

Consolidating your debts may provide a lower overall interest rate and thus save on your interest costs. This is particularly true if you consolidate your outstanding credit card balances into a loan at lower interest rate. You may also be able to extend your repayment period, making your monthly payments smaller. Debt consolidation can also help simplify your finances by giving you just one monthly payment to manage your debts.

However, before you take out a new loan to consolidate your debts, you should note and carefully review the following:

• Make sure the interest rate of the new loan, including all fees and charges, enables you to save on the cost of borrowing.
• There will be risks on your assets when you turn unsecured loans (such as credit card debts) into secured loans (using an asset such as your self-use property as security). The assets used as collateral will be repossessed if you fail to make repayments.
• While consolidating short-term loans into one longer term loan to reduce your monthly interest payments, you may end up paying more in interest in the long run.

There can be serious consequences if you allow your loan to default:

• Foreclosure: If you put up collateral to secure your loan, the lender can foreclose - taking the asset to repay the loan.
• Higher interest or denial of credit: Your credit score can be damaged if you default on a loan. This will affect interest rates on future loans and may result in denial of future credit.
• Collection fees and costs: If you default, you'll pay any collection fees and costs associated with your loan collection.

Filing for bankruptcy is a legal process under which you are declared unable to pay your debts by the court. In some cases, bankruptcy may be an option for getting out of a bad financial situation. If you declare bankruptcy, you will be released from most of your debts, but you'll be bound to a repayment plan filed with the court. Read more about bankruptcy.

Learn more about guide to responsible borrowing and how to manage debt collection