In this current day and age, basically, everyone is in debt, there is no denying that. However, there are many different ways to get out of debt, and with more great options becoming available, it has never been easier. For example, you can begin to budget better, or even look at an informal debt arrangement. What is an informal debt arrangement, you may ask?
What is an informal debt arrangement?
An informal debt arrangement is a specific arrangement between a debtor and a creditor. In this arrangement, the debtor must pay off what he owes to the creditor as per the agreed terms. It is somewhat similar to a debt agreement, though it doesn’t harbour the same legally binding process or the impact on your credit score.
In this instance, a debt counsellor/manager will talk to your creditors. On your behalf, they will be able to negotiate with them and come to a conclusion. When you employ a debt manager, you can:
- Reduce your debt level
- Reduce your interest level
- Come up with a mutual agreement that is beneficial to both parties
A debt counsellor will often get you a better deal than you could have gotten yourself in what is an informal debt arrangement. In fact, the reduction in the amount of debt you have to pay could outdo your expectations completely. What this also means is that you will be able to pay off your debt so much quicker. In only a short period of time, you will be debt-free once again.
The bottom line is that informal debt arrangements are a great tool. They provide a fuss-free way to avoid damage to your credit card rating with no defaults or black marks. Think of the arrangement as a way for both parties to receive a favourable outcome
What is an informal debt arrangement option?
Essentially, an informal debt arrangement is a great way to protect your credit rating. There are a number of options available to you when you enter a debt arrangement such as:
- You can make a reduced payment which helps signify your intent to pay off your debt. If your debt is going to last longer, you will likely have to enter a formal arrangement.
- If you are unable to keep up with your debt repayments, you can negotiate a reduction of interest.
- You can offer a debt reduction offer. This is where you offer a lump sum less than the total amount of the debt. If the creditor thinks that it pays off enough debt, they will usually accept it as complete payment.
- If they don’t accept the deal, your creditors will be able to force you into bankruptcy. This can’t happen until after the meeting between yourself, your administrator, and the creditors.
- You can get a waiver on the debt for a period of time. You can do this by asking for the time to find the money to help pay off the debts. Usually, a creditor will accept this if it is clear, you have no other way of paying off the debt.
- You can ask for an extension on paying back your debts if it is only a short-term problem.
The benefits of an informal debt arrangement
Let’s take a look at the benefits of an informal debt arrangement.
- No eligibility requirements.
- Collection calls usually stop.
- You will be able to make affordable payments with a realistic budget.
- They don’t require a good credit record.
- Payments are on your schedule whether that be weekly, fortnightly, or monthly.
- Your work qualifications or professional licenses won’t be affected.
- One single payment will cover your liabilities.
- All interest is frozen in most cases.
- Any debts you have can be included in the arrangement.
- Limitations do not exist on income, property, or other asset ownership.
- They are not registered on your credit report.
- Your ability to run a business or travel overseas will not be affected.
- Not all of your creditors will need to agree on what is an informal debt arrangement.
The limitations involved in your informal debt arrangement
Now, let’s look into the limitations involved in what is an informal debt arrangement.
- Your creditors may completely refuse to negotiate.
- You will not be protected by Australian Government legislation. This means that creditors may make changes to the terms of your arrangement at any time, contact you directly if you fall behind, or take further legal action.
- At times, you may find that your payments are being continually renegotiated.
Is an informal debt arrangement right for you?
An informal debt arrangement may be the right option for you if you’re 100% dedicated to making your payments on time, all the time. Informal debt arrangements are great for resolving any short-term financial trouble and they will save you money in the long term. On top of that, they will do it without affecting your credit in any way.
Companies such as Just Budget can help you live a life without debt stress. With what is an informal debt arrangement, Just Budget will help to take the burden of debt off of your shoulders. Just Budget are always here to discuss your finances and find a suitable solution.