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Debt Agreement Pros and Cons

By Administrator 11 April, 2014

What is a Debt Agreement?

A Debt Agreement is a formal arrangement that you can enter into with your creditors that will allow you to settle your debts with a legally binding payment plan. It effectively freezes your debt at the level it is at now, meaning that no more interest or charges are added, and you will offer your creditors a percentage of what is owed over a period of time (usually 3-5 years). As you can imagine, people would be offering Debt Agreements all the time if there were no negative consequences, and for that reason they are designed to ensure that the only people proposing them are those who really need to.

What are the cons of a Debt Agreement?

When you lodge a Debt Agreement Proposal for your creditors’ consideration, there will automatically be a record kept of this in two places. One of them is the National Personal Insolvency Index , which is a government register designed to keep track of who has sought the assistance of a formal debt solution. This record is permanent, but one also has to pay a fee to search the database, so you will find that it is usually only accessed in extenuating circumstances.

The record that concerns most people is their credit file, which will have a mark on it for 5 years from the time that you lodge your Debt Agreement Proposal (assuming your agreement doesn’t run for longer than 5 years). What this means is that whilst you are in your Debt Agreement you will not be able to gain credit, and for the few years after you come out of it you might find it a little more difficult than before. It will always be up to the individual finance company as to how they react to the fact that you have entered into a Debt Agreement when they assess your application for credit.

What are the pros of a Debt Agreement?

A Debt Agreement has many positive aspects to it, however, and for some people these pros will outweigh the cons. After you have completed your Debt Agreement you will be legally released from the debts which you owed at the time you lodged your Debt Agreement Proposal. Many people find that a Debt Agreement helps them control their money and spending habits as the Debt Agreement is based on a strict budget.  Many of our clients have told us that they have even been able to save money whilst also paying off the debt included in the Debt Agreement.

Five years may seem like a long time to have a mark on your credit file, but if you consider how long it would take you to pay back your unsecured debt if you kept going the way that you are, you might actually find that the trade-off is worth it. And if you are truly insolvent and unable to pay your debts as they fall due, whilst still maintaining a comfortable standard of living, it is likely that your situation with credit is going to continue to worsen.  In many cases people find that their credit file already has marks recorded against it, so in this sense a Debt Agreement being recorded against it isn’t going to make it much worse. It is for these people that a Debt Agreement is designed, those for whom the positive aspects are going to make the negative worthwhile. Speaking to a reputable Debt Agreement Administrator will help you to determine whether or not a Debt Agreement might improve your overall financial situation and quality of life.