Is a Formal Debt Agreement the Right Option for You

According to the recent statistics, debt agreements have increased significantly over the last year. This means that more Australians are seeing a formal debt agreement as their only solution to getting themselves out of debt.

While these agreements are a good option under certain conditions, they should definitely be used only as a last resort and only after other solutions have failed. If you are considering entering into a formal debt agreement, it is crucial that you understand all the implications and have tried all other options.

Understanding Debt Agreements
A debt agreement is formal agreement made between yourself and your creditors. In the agreement, the creditors typically agree to setter your debt for a lower amount than you actually owe. You will then be ordered to repay this amount over a set period. While this may sound like a good idea, it is important for you to realize that debt agreements are binding and regulated by the government. Debt agreements are part of the Bankruptcy Act of 1966, and it will go on your credit report for seven years. This could decrease your ability to obtain credit in the future and can even prevent you from getting certain jobs.

Talk Directly to Creditors
Before you enter into a debt agreement, you need to try various other avenues. One of the best places to start is to talk directly to your creditors. The creditors are oftentimes willing to work with people if they contact them and try to work out an agreement. See if your creditors are willing to reduce the overall amount of debt your owe them. Then determine exactly how much money you can pay them and when. This may offer you the same discount as a formal debt agreement without going on your credit report or being regulated by the government.

 
Seek Financial Counselling
If you are considering entering into a debt agreement, you should not make any final decision without first talking to a financial counsellor. The counsellor will take a close look at all your financial obligations and your current income, and provide you with several options to resolving your outstanding debt. The counsellor will even talk to your creditors on your behalf to try to work out a reasonable payment agreement with them in an effort to avoid a formal debt agreement. Your counsellor will also help you determine if all your other options have been explored and if a debt agreement is your best solution.

Things to Look for
If after exploring other options, you determine that a debt agreement is the right option for you, there are certain things you should be aware of. First, you want to make sure that you only work with an administrator that is registered with the government. Without this approval, he/she may not provide you with adequate services. In addition, most administrators charge a fee for their services, so you want to make sure that you ask upfront what their fees are and when they will be paid. Finally, be sure to check with several different administrators before making your final decision.

If you are able to get approved, applying for a consolidation loan is another way to assist with debts.

A debt agreement can be a great solution to help some people get out of debt. It is important though to realise that this agreement will go on your credit report for years to come and is enforceable by the government. It is best to use this option only as a last resort and only after, you have tried working directly with your creditors or a financial counsellor.

Image courtesy of Stuart Miles / FreeDigitalPhotos.net