A national news program on a commercial TV station recently slammed Debt Agreements in an unbalanced report on prime time TV. They had “finance experts” who denigrated heavily, with no commentary to support their claims, the evils of Debt Agreements.

Debt Agreements

Get all the facts right when it comes to Debt Agreements. Picture: Thinkstock

SO, we took a good look at the commentary received when that outlet posted the article on their Facebook timeline. Many people were ignorant of what a Debt Agreement was and continued to misinform. So we took their comments as a base line to rectify the furfies…..

False Statement #1

 Debt Agreements will ruin your credit rating FOR LIFE! (This one was the news report itself)

Debt Agreements will definitely NOT ruin your credit rating for life. With the changes to the Privacy Act in March 2014, your credit rating (found on your credit file) is affected by many things.  You don’t have to be in the throws of crippling debt, juggling multiple payments, and missing some to be damaging your credit file. Information gathered on your credit file however only lasts for five years. Meaning….if you enter into a Debt Agreement, like any other reporting on the credit file, it will only be on your credit report for five years from the start date of the agreement and no longer.

False Statement #2

People who go into Debt Agreements are stupid.

Are they serious!! Less of the name calling! People who go into a Debt Agreement are not only smart, they are brave and courageous too. They have been to that place that society screams at them “you’re a financial failure” and in many cases through no fault of their own. Read Leonard’s Success Story if you don’t agree with this statement.  How does being devastated with health issues constitute stupid? These smart, brave, courageous people have experienced the brink of financial collapse and have decided they need to take action for their family. That’s smart thinking.

False Statement #3

People who go into Debt Agreements have been greedy and want things they can’t have. “Because people want it now. Culture of consumerism.”

Let’s face it, the majority of Australians can be accused of wanting things they don’t need and stacking it on the credit card or taking on those interest free (for a time) options from big furniture outlets or electronic stores.  This statement is not isolated to those who enter Debt Agreements.  Ridiculous statement.

What we see, here at Debt Cutter,  is the majority of those who come to us have been handling their finances OK until something out of their control happens – Job Loss, Pregnancy, Car accident, Health issues.  Sure perhaps some better planning may have better prepared them, maybe a little less misspent youth, but who doesn’t have that. But from our experience, time and time again we are reminded here at Debt Cutter that it can happen to anyone! Finances are never black and white.

False Statement #4

People on Debt Agreements don’t have any common sense.

Have you noticed that common sense isn’t very common anymore? Common sense as a general rule is a notion shared through a group via education. Usually through story or watching people do something. However, with no real education on financial management taking place in school institutions, finding common financial sense can be difficult. If the common sense during ones upbringing wasn’t ‘good financial sense’ it can be difficult to break the mould. So…read number 3 again and instead of ‘greed’ insert ‘common sense’.

False Statement #5

Debt Agreements stay on your credit rating for over 7 years.

When they get this one wrong you really need to question their research and authority.  Changes to the legislation in March 2014 mean that the Debt Agreement only stays on your credit file for five years, like other defaults. During this 5 year period all debt in the agreement is settled in full, although it can be challenging, many people walk away from this process debt free.  Often during this period we find that circumstances change allowing many to start saving again, this allows them to hit the ground running in terms of getting their credit file into a great space post the 5 year term. Much like a reset button on your financial situation. In addition the discipline of living without credit during this period sets people up with better financial habits. The long the short, after 5 years you’ll get a fresh start again.

False Statement #6

A Debt Agreement is the same as bankruptcy.

It is correct to say that a Debt Agreement is managed under the same Government Act as bankruptcy and it is referred to as an Act of Bankruptcy because it is an option for people that are insolvent (that is expenses outweigh income) like bankruptcy.  But to say it is the same as bankruptcy misses some of the key subtleties that makes a Debt Agreement a far better option for a lot of people.

For example:  Only unsecured debts go into a Debt Agreement.  That means that if you have a home with a mortgage, this is not subject to the agreement and as long as you keep your payment commitments up on this asset it won’t be sold to pay your other creditors.  In other words you get to KEEP YOUR ASSETS.    This is a huge advantage allowing people to stay in their home whilst resolving their debt crisis. Starting again in the real estate market is more than just a little challenging for most, in fact giving up this asset can mean giving up the concept of a family home forever.  Similarly with any other assets, like cars, which are often critical assets enabling people to earn income and maintain normal day to day activities.

Debt Cutter founder, Geoff Chester, discusses the differences between a Debt Agreement and Bankruptcy.

False Statement #7

A Debt Agreement is a consolidation scam.

Debt Agreements are a scheme set up by the Australian Government to help people resolve their seemingly unresolveable quandary. There is just not enough income to pay the expenses. See AFSA.gov.au site for more details. It was set up by the Howard Government in 1996 and fairer rules implemented in 2007. It is hardly appropriate to accuse the government of scamming.

It is important that people fully understand what a Debt Agreement is before signing.  Debt agreements are definitely not agreements to borrow or loan money. They are not able to have you released from all types of debts – secured debt cannot go into an agreement and will still need to be repaid. And they are not an appropriate solution for everyone.  Here at Debt Cutter we discuss these ins and outs with each person who rings in our no obligation, free debt consultation.

False Statement #8

People on a Debt Agreement don’t know how to save.

I’ll just refer you back to #3. Insert “Don’t know how to save.”

Many people on entering a Debt Agreement, didn’t have enough money in their budget to save because life’s circumstances took hold and sucked every last dollar from their surplus. Read our success stories, people like Terri and her husband or Laurita’s journey, these people’s stories will change your mind on that one. Life can deal out doozies for some of us.

False Statement #9

Debt Agreements cost you in heaps of fees, “they charge you a fortune to do it.”

Debt Agreement administration services cost money to deliver and therefore carry fees, some of those fees are Government fees and some are paid to the administrator. We have outlined the fees payable to Debt Cutter on our FAQ’s page, for reference.

Someone jumping in on your behalf to relieve your debt stress does cost money. Money to pay for wages, costs of phone calls to the creditors, getting credit file reports, setting up your budgets, collecting and paying creditors on behalf of clients, complying with Government auditing requirements, and the list goes on. All those things take time and money. The fees are calculated based on the size of the debt and is determined based on a review of a client’s budget and what they can afford after taking into account all reasonable expenses, therefore, it is not a fixed fee but depends on circumstances of the client.  Once an appropriate budget is determined the fee that is paid actually comes out of the payment to Creditor’s not from the client”s themselves.  After negotiations take place on behalf of the client, the Creditors agree to reduce the amount of debt that is owed and pay a fee to the Debt Agreement Administrator for handling this repayment.  The fee is written into the agreement and the cost is spread over the lifetime of the agreement.

What is your pitch on Debt Agreements?

Have you been in one? Have you taken steps to compare Debt Agreement companies and found some are better than others? Found some of them care about your circumstances while others have staff, driven by incentives to get you to sign up? Debt Agreements are a process to go through over time, not saleable items. If you find yourself needing a Debt Agreement, make sure you do the research and find a company that cares about you through those 3 to 5 years. Not only during the sign up process.  There are good and bad citizens in every industry.

Debt Cutter has a no incentive policy with all our consultancy staff that allows them to take the time to listen to your circumstances and provide you with all the information you need to make an informed decision.  We truly care about each and every one of our clients and work hard at helping them to achieve their financial goals and set them on the path to financial freedom.

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If you’re facing financial hardship we are here to talk about a solution.  Call us on 1300 887 211 or Book a Free No Obligation Phone Consultation with our friendly team and we can discuss debt management options specially focused on your personal situation.