Financial Rights Legal Centre
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I’m in debt – should I sign with a debt negotiation firm?

This fact sheet is for information only. We strongly recommend that you get legal advice about your situation.

Employing a debt negotiator to deal with your creditors may sound like an attractive option, but the wrong service can make your situation much worse, and still charge you for their services.

This fact sheet gives you information about why debt negotiation may be harmful, suggests alternatives and also explains what to do if you find yourself already signed up.

Case Study

 Dani had a large number of debts owing and could not afford to make her minimum payments. Dani saw TV ads for a DEBT NEGOTIATION FIRM and called them for assistance negotiating repayments.

Dani was told that she had to pay a fee of $1250 up front as well as repayments of $101.21 a week by direct debit. Dani was informed that until the initial payment was received the DEBT NEGOTIATION FIRM would not begin negotiating with her creditors.

Dani was told to not be alarmed if she received threats of legal action, default notices, and demand letters as these were ‘automatically generated by a computer system’ and all she had to do was to forward such letters to the DEBT NEGOTIATION FIRM.

Dani was advised to save as much money as she could. Dani was also instructed to stop making repayments to her creditors. She was advised that by stopping her repayments she would increase her savings. These saving would then enable her to pay the settlements offers that the DEBT NEGOTIATION FIRM achieved through negotiation with her creditors.

After not hearing from the DEBT NEGOTIATION FIRM for some time, and not having her calls returned, Dani began to worry. She was receiving increasingly threatening calls from debt collectors and one of them had served her with a Statement of Claim (the first step in starting court proceedings in NSW).


Debt negotiation is a negotiation between a debtor and creditor (or creditors) to settle a debt on terms which are beneficial to both parties. Sometimes a creditor may be willing to accept a lower amount than the actual debt figure if they receive the amount as a lump sum.


Debt negotiation firms market themselves as professional debt negotiators. In exchange for a fee, they offer services such as suggesting or assisting people to apply for repayment arrangements or waivers, or complain to free external dispute resolution services such as AFCA.

From 1 July 2021 (subject to some transitional sections), debt negotiation firms do need to:

  1. Have an Australian Credit License; and
  2. Be a member of the free external dispute resolution (EDR) scheme, the Australian Financial Complaints Authority (AFCA). AFCA provides an important consumer protection role, as it provides you a free way to resolve disputes fairly.

Debt negotiation firms operate in different ways and may charge different amounts for the services. For example, they may charge you a fee based on a percentage of the amount of your debts, or as a percentage of any amounts they save you. These fees can add up to thousands and even tens of thousands of dollars depending on the size of your debts.

Some problems with debt negotiators are:

  • A debt negotiation firm may suggest you stop paying your creditors and pay them instead. Only once you have paid them their fee, or an agreed part of it, will they negotiate with your creditors. This can leave you subject to debt collection and enforcement action in the meantime.
  • A debt negotiation firm may ask if you can obtain a lump sum amount by borrowing from friends, borrowing from a mortgage or other credit facility or accessing your superannuation early. Ask yourself  whether this is suitable, strategic, in your interest or the best solution for you.
  • In some cases they rely on you to save up a lump sum by not paying your creditors. Ask yourself if this is realistic. If you are already missing payments, you may not have any capacity to save at all.
  • A debt negotiation firm may advise you to stop paying your debt to create “leverage” with your creditor and this could lead to default listings, legal proceedings being commenced and other negative outcomes.
  • A debt negotiation firm may negotiate with multiple creditors with no regard to the implications of paying one creditor over another. For example, the Australian Tax Office has hardship policies which allow for generous reductions and remittance of interest only if you pay them in preference to other discretionary debts.
  • The debt negotiator may charge you considerable fees without actually fixing your financial problems. For example, they may have your debts reduced by $30,000, and claims fees as a percentage of this amount, but you may still not be able to afford to pay the $40,000 in debts you have left. The contract will usually say that they can charge you if they reduce your debts, there will be no obligation to ensure that this is sufficient to fix your problem.


Financial Rights strongly recommends that you DO NOT sign up with a debt negotiation firm. But if you are considering signing up it is important to understand and clarify how the company  is proposing to assist you and what the fees are.

You need to consider the following:

  1. Can you afford the lump sum (to offer your creditors)?
  2. Can you afford the fees?
  3. Does the Debt Negotiation Firm’s plan for you make sense? What if only some creditors agree and others don’t? What does the contract say about what they get paid if they only sort out some of the problems? Are you going to be worse off or should you consider a different option?
  4. Will your situation get worse while you are paying the Debt Negotiation Firm’s fees and not paying your creditors? What impact will this have on your credit report?
  5. Ask yourself: Can you trust that they will deal with your all debts?
  6. Is the Debt Negotiation Firm a member of AFCA: If not, they are unlicensed and unregulated and should be avoided.
  7. Are there better, free alternatives?


  1. If you are having financial difficulties, contact a free financial counsellor as soon as possible. They can help you come up with a plan to tackle your money problems. You can be referred to one if you call the National Debt Helpline on 1800 007 007 or search here: Financial counsellors can assist you with realistic, sustainable arrangements with your creditors.
  1. ASIC’s Budget Planner is a helpful calculator to work out where your income is going.
  1. If you are going through temporary hardship (for example, because you have been sick, temporarily unemployed, or suffering from a relationship breakdown), you can contact your creditors and ask for hardship assistance. Most financial service providers and telecommunication and electricity providers have channels to provide hardship assistance. See our Financial Hardship Fact Sheet for more information.


Whilst it can be difficult to cancel a contract, there may still be options. As a general rule, once you have signed up to a contract, you are usually bound by its terms. You should follow the steps outlined below if you want to cancel your contract with the Debt Negotiation Firm and raise a dispute:

  1. Check your contract. You may fall under a ‘cooling off’ period, or there may be a provision for termination. However you may be liable for cancellation fees or fees until the termination date.
  2. Call our Legal Advice Line on 1800 844 949 to obtain legal advice regarding your prospects of success in cancelling your contract and/or obtaining a refund. Try and have a copy of your contract when you call for advice.

Whether you can (i) terminate the contract and pay nothing further; or (ii) seek a refund of the fees already paid will depend on the individual facts and circumstances of you signing up. You may also be able to seek compensation for additional losses suffered.

You could potentially make a claim, arguing that:

  • the services rendered were not fit for your stated purpose
  • the Debt Negotiation Firm engaged in misleading and deceptive conduct or unconscionable conduct,
  • the Debt Negotiation Firm failed to provide its services efficiently, honestly and fairly, or
  • the contract included unfair contract terms

These arguments can be complicated and you should get legal advice.

  1. Contact the Debt Negotiation Firm and raise a dispute. This can include you asking to cancel your contract, or asking for a refund of fees paid. You can find the relevant contact details for the debt negotiation firm’s dispute resolution officer from AFCA by searching here:
  2. Lodge a complaint in the Australian Financial Complaints Authority (, 1800 931 678) if the Debt Negotiation Firm has not responded within 45 days. Time limits apply to making a complaint.
  3. Take the Debt Negotiation Firms to NCAT or Court. You can take the matter through to NSW Civil and Administrative Tribunal (NCAT) or Court. If you are considering this option, we strongly advise you obtain legal advice before doing, as there are risks, including payment of costs if you are unsuccessful. Time limits apply to making a complaint.


Need some more help?

  • For legal advice, you can call our Legal Advice Line on 1800 844 949
  • For financial counselling, you can call the National Debt Helpline on 1800 007 007
  • See our fact sheet: Getting help

Last updated: 21 September 2021.