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What are the consequences of entering into a Debt Agreement?

By Administrator 21 January, 2014

Debt Agreement is an ideal solution for many people who are struggling to pay unmanageable debt. It is not without negative consequences though; because it results in the banks missing out on some of the repayments and interest that they are entitled to, there has to be a downside to it to help keep the system fair. But there are also many positive consequences of entering into a Debt Agreement, and these should be weighed against the negatives before deciding to go ahead so that you feel confident in your decision.

The main negative consequence of entering into a Debt Agreement is that it places a default on your credit file for a period of 7 years. There is also a permanent record placed on the National Personal Insolvency Index, but this is rarely accessed because you must pay a fee to do so, so most people are generally only concerned with the credit file default. Practically speaking, this means that you would not be gaining any new credit for a while – certainly, whilst you are under the Agreement, you would not be applying for more credit (and in some circumstances it is actually an offence to do so), and after you come out of it there will be a period of maybe 2-4 years where any credit applications would be subject to closer scrutiny by the banks. Note that this can also impact on applications for new phone plans, utility connections, and the like, and that if you are a Sole Trader or in a Partnership it might affect the way that you run your business.

Don’t forget though, that it was credit that got you into this situation in the first place. Not being able to get more for a while is seen by many people as a good thing! As are some of the more positive consequences of entering into a Debt Agreement, such as legal protection from recovery action; reduced payments; frozen interest; and a foreseeable end to your unsecured debt. In many cases, the upsides to a Debt Agreement are enough to outweigh the downs, and a credit file default looked upon as a small price to pay.

If you are considering entering into a Debt Agreement, call our professional debt advisors so you can get fully informed of all consequences, both good and bad, before making your decision. Our debt consultants have years of experience in setting up and maintaining Debt Agreements and will be able to advise you on all aspects of the process, allowing you to make a fully informed and comfortable choice. Call us today on 1800 676 598.