Act early to stop debt spiral, says broker

“Eventually their debt repayments put them in a position where they get very close to bankruptcy and, in hindsight, they wish they’d sold their home sooner in order to get rid of their debt earlier and give themselves time to get back on track,” he said.

Mr Sirianni said investors who anticipate financial difficulties arising from redundancy, illness or injury had much to gain from acting early to avoid serious financial stress.

“It’s always best to be upfront with your lending institution to let them know about your situation – particularly if you predict that you’ll experience financial difficulties in the near future if you don’t secure another income,” he said.

“Not surprisingly, it’s in lenders’ best interests to work with borrowers to manage mortgage repayments during tough financial times.”

Mr Sirianni said if you’re in a precarious position and struggling with debt, you should contact your lender or mortgage adviser to look into switching to interest-only repayments or taking “a repayment holiday”. This will help you gain a realistic understanding of your predicament and potential outcomes.

“Not only are many people surprised by how readily lenders will work with them, they find that any misconceptions around how they might manage their debt on their own are incorrect," he said. “For example, many people mistakenly think that because they have equity in their home they can just borrow more money to help them manage their finances during difficult times, but if you don’t have an income, lenders will not – cannot – approve any new lending.”

In addition to the impacts of being unable to work as a result of poor health or injury, Mr Sirianni said it was credit card and personal loan debt that caused the most significant stress and change in financial circumstances.

“Out-of-control credit card and personal loan debt is a heavy drain on your finances, and the best way to deal with it is to put yourself on a repayment plan and talk with the lender,” he said. “Cut up the card, put yourself on a weekly or monthly repayment plan and make the commitment to pay off the debt.

“If you find yourself in a distressing financial position as a result of an unforeseeable event that, in turn, sees you falling behind on your mortgage repayments and incurring significant credit card debt as a result, there are options available – highlighting the need to get on top of out-of-control debt from the very beginning.”

Mr Sirianni advised investors to look closely at their insurance options and speak with their mortgage adviser regarding their personal situation.