Entering into a Debt Agreement comes with some consequences, the main one being that you will have a default placed against your name for 7 years from the time you lodge your proposal. A Debt Agreement will typically last somewhere between 3 to 5 years, which means that when you finish paying it, you will most likely have a further period of 2 to 4 years where you still have that mark on your credit file. This does not mean that you cannot apply for more credit, but it does mean that the lender may want or need to consider your application more carefully.
Being limited in your ability to get more credit doesn’t have to be a bad thing especially when you think about the reasons why the default is placed against your name in the first place. The main reason for giving you a default is to ensure that the Debt Agreement is something that you really need to do – without that consequence no one would pay back everything that they owe! But another reason for marking your file is that it gives you the chance to financially rehabilitate yourself. It seems a little pointless to finally find yourself completely debt free, only to then go out and get yourself back into debt again. Most of the people that we speak to say that they never want credit ever again, let alone for the 2 to 4 years after they complete their agreement.
But if you do want or need to apply for credit after completing your agreement, we recommend that you first wait about 6-12 months after completing your agreement. Give the dust a little bit of time to settle. During that time you can start putting away the money that you have been paying into the Debt Agreement for the last 3 to 5 years, so that when you do apply you have a history of saving that you can show them, and a nice amount in your savings account that you can list as an asset. In the end, the bank’s decision could be influenced by a number of factors including:
- the default placed on your credit file from the Debt Agreement;
- your relationship with them;
- their lending criteria;
- your savings; and
- the economic climate at the time.
There are ways to improve your chances though, and the very commitment of proposing and completing a Debt Agreement to settle your debts instead of declaring bankruptcy can often be looked upon favourably.
If you would like some advice on selecting a Debt Agreement Administrator call the team at Debt Free Australia. Our team is fully trained and can advise you on your best options. Call us today on 1800 676 598.