Facing negative financial issues can be incredibly stressful, making it difficult to make further choices on what will be good for you in the short term and also down the track. With so much information available it can be overwhelming and easier to just ignore looking at the whole situation. But the best thing you can do is jump in and get a reality check on your finances so you can assess each available option and see what will work best for your situation.

For those facing unworkable financial hardship we offer the same solution presented differently. And if either of these work for you, you could find you financial stresses reduced significantly.

Informal Arrangement

An Informal Arrangement is known as an Informal Debt Negotiation where we assess your individual situation and then negotiate with your creditors to change the terms upon which the debts will be repaid for a temporary duration. This allows you to manage your debt through a simple repayment plan, allowing you to get on with life without the hassle of debt collectors hounding at your door. In other words, we work to formulate a budget then seek to lower monthly payments, reduce interest and/or buy you more time.

There is a number of flexible repayment options that are possible through an Informal including: an extension of the term of a loan; a short term reduced repayment (which is usually accompanied by an interest rate reduction); a short stay on payments (otherwise known as a payment holiday); a debt settlement where we negotiate a lump sum payment to finalise the debts at a reduced rate.

Of course this all depends on your individual circumstances, particularly what is causing the issues and the acceptance criteria of your creditors. It takes skill to negotiate great outcomes.

With an informal arrangement the terms are very strict due to the nature of the arrangement, that is the creditor is giving up their income to help you, therefore they are ideal when you are confident in your ability to maintain the negotiated payments.  The arrangement is suitable for eliminating debt stress in a broad variety of circumstances and is particularly beneficial in circumstances where you only have a small number of creditors and you are experiencing hardship because of a temporary challenge causing issues servicing your debts.  Creditors do recognise that sometimes compromise needs to be made and are willing to negotiate for a temporary period of time so that normal repayments can resume again in the near future. It is possible for informal arrangements to permanently affect the terms but it really is case by case.

In short, Informal Arrangements work for short-term hardship situations, as it can be set up quickly and does not get recorded on your credit file due to its “informal” nature. However, implicit in the agreement is that the creditors agree to a compromise only if you keep your end of the bargain.

Due to the stringent nature of these arrangements, here at Debt Cutter we offer a debt pay program in conjunction with the Informal Arrangement negotiation to keep it more manageable for our clients.  This means that you only need to make one regular payment, which we  disburse, on your behalf, to all of your creditors.  In most cases informal arrangements can only be negotiated on a 3-6 month term, if your circumstance haven’t changed, with further negotiation they can be extended.  We can negotiate better terms with the creditor with a debt pay service in place because they know that you are being supported.

Good for most “unsecured” debts including credit cards, unsecured or personal loans, store cards, debt owed after repossession, disconnected utility bills, phone bills and accounts in collections.

Each situation is unique. It usually takes about 5 weeks to set up an Informal Arrangement, but can be expediated if necessary.  The time it takes to clear a debt is mainly dependent on your financial situation and what you can afford. It is to be noted that creditors are under no obligation to accept offers of reduced payments, and if they do accept, they can cancel the agreement after just one missed payment.  This is when having a skilled negotiator, like the team at Debt Cutter really helps.

Formal Debt Agreement

A Debt Agreement is formally called a Part 9 (IX) Debt Agreement, that is, Part IX of the Bankruptcy act. It was introduced by the Federal Government in 1996 to provide an alternative to bankruptcy to those who are financially overstretched.  It allows people to retain their mortgages on their houses or secured assets, whilst dealing with their unsecured debts over the longer term. Unlike bankruptcy you get to keep your assets.

Basically a Debt Agreement is a legally binding agreement between you and your creditors allowing your contract to be legally renegotiated. Your debt agreement administrator negotiates an offers on your behalf to repay your current unsecured debts over an agreed period of time taking into account, not only what is owed but also what you can afford. By accepting the offer, the creditors agree to reduce your debt, freeze your interest, halt all default fees and charges and release you from all further commitments at the end of the agreement period.

Debt Agreements differ from Informal Arrangements in that the agreement is formalised under law. This agreement is listed on your credit file. Creditors are as much bound by the agreement as are those who negotiated the compromise arrangement. Once the agreement is established it is set in place for 5 years.  It can be paid off earlier, however it will remain on the credit file as a “Paid Default” until the 5 years from the start date of the agreement is up.

“…if you are bankrupt, have a debt agreement or personal insolvency the length of time this information remains on file could vary depending upon when the bankruptcy, debt agreement or personal insolvency agreement was entered into and when it ends,” Veda.com.au

Debt Agreements provides more certainty and security for those facing hardship in the longer term without the need to renegotiate every 3 to 6 months.  With an informal arrangement there is no guarantee that the Creditor will accept the arrangement or continue to renegotiate in the long term however with a Debt Agreement the agreement is formally locked in for 5 years.  The Debt Agreement also puts in place a solid payment plan to completely pay off the debts in the agreement over this period, at a significantly reduced rate, compared to the original contract.  This means that when the Debt Agreement is complete then you are completely debt free.

As previously stated however, the significant difference between Informal Negotiated Arrangements and Debt Agreements is a formalised agreement and as such is listed on your credit file.  This makes it difficult to obtain credit during the time of the Debt Agreement.  Which makes sense, you have negotiated a compromise arrangement with your creditors to pay back your debt at a significantly reduced rate, why would you want to be racking up more debt during this time.  Lets face it that is what a credit file is for, to help you get more debt. Most people find that during the Debt Agreement their circumstances do improve, which means that the spare money they have from not having to pay interest on their debts can be saved or used to cover those things that the credit card was needed for.  At the end of the formal Debt Agreement the credit file is updated and you will have a fresh start. See our Kickstart your Credit Score blog for more discussion on this.

Deciding whether or not a debt agreement is the best option for you can be daunting.  There are a lot of uncertainties and questions to be answered. The Debt Agreement solution is not for everyone, there is qualifying criteria that needs to be met, so it pays to talk to a specialist debt advisor, like Debt Cutter to make sure you are making the right choice for you.

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 Debt Consultation with our friendly team and we can discuss debt management options specially focused on your personal situation.