Is there such a thing as an informal debt agreement?

Is there such a thing as an informal debt agreement?

You may have heard the term informal debt agreement before. This kind of debt plan is similar to a debt agreement; however, we like to think of it as a handshake agreement between the debtor and the creditor.

An informal debt plan is a payment plan made between you and your creditors that does not affect your credit score.

Interest is usually frozen, and the debt is paid off within 3-5 years. This type of agreement is not recognized by laws and regulations but it helps to resolve debt issues without the negative consequences of a Part 9 Debt Agreement or bankruptcy.

It also allows you to stop receiving calls from collection agencies. Furthermore, an Informal Debt Arrangement will not be listed on the National Personal Insolvency Register permanently and it does not impose any restrictions on your income, travel, home ownership, employment licenses, or company directorships.

By consulting a certified debt negotiator, they can negotiate with creditors on your behalf, help eliminate any fees or interest, and establish a more affordable repayment plan that suits your financial circumstances.

Key Takeaways

  • Informal debt relief plans are a viable alternative to stricter types of debt relief, such as bankruptcy and s Part 9 Debt Agreement.

  • Informal plans do not affect credit score, and interest and fees are frozen while the debt is paid off

  • Informal debt relief plans are not recognised by Australian Government legislation or court orders, so there must be a shared level of goodwill between the debtor and creditor for the agreement to work.

  • Most informal debt relief plans are established by third-party debt negotiators, who not only liaison with both parties but also collect debt payments and pass them on to the creditor.

Advantages of Informal Debt Plan

There are many advantages to an informal debt relief plan. At Debt Fix, we often like to refer to an informal debt relief plan as a Credit Score Protector Plan, because while it functions like a formal plan to settle debts, it doesn’t impact your credit history like Debt Agreements or Bankruptcy.

When you enter into a Credit Score Protector Plan agreement, the decision to do so will not affect your credit history and you will not get listed on the National Personal Insolvency Index. This means, the next time you need to apply for a loan, you will be more likely to qualify, and you may end up paying lower interest rates as well.

Another benefit to the Credit Score Protector Plan is that, if you are under financial hardship, our debt negotiators can advocate on your behalf. They can try to lower the total amount of the debt and even freeze all fees and interest while you repay the debt. This way, you can focus on just repaying the debt, without having to worry about the added burden of associated fees and interest adding to your financial stress.

Moreover, the Credit Score Protector Plan is incredibly flexible. If your circumstances change at any time, just let your debt negotiator know. They will strive to renegotiate your Credit Score Protector Plan with your creditor under new terms.

Disadvantages of Informal Debt Plans

The main drawback to an informal debt relief plan is that they are not protected by any Australian Government legislation or court order. Therefore, the success of an informal debt relief plan depends on how willing you and your creditor are to work together and reach a fair agreement.

With a debt negotiator, they can help both parties agree to fair and reasonable terms, ensure the repayment process goes smoothly, and – at the request of the debtor or creditor – adjust the terms of the agreement. Regarding that last point, while a creditor can choose to change or cancel an informal debt relief plan, there is no real reason for them to do this, especially if you are already repaying your debts on time.

Another downside to informal debt relief plans is that creditors may refuse to agree to them altogether. If this happens, then you and your debt negotiator may need to explore other debt relief options, such as a Part 9 Debt Agreement, debt consolidation, or bankruptcy.

When to Consider an Informal Debt Plan

Whether or not an informal debt relief plan is right for you will depend on your personal and financial circumstances. They are often used as a short-term debt relief option, particularly when a debtor has a sudden change in their work or personal circumstances. For example, losing a job, being demoted (to a lower paying role), experiencing a sudden illness or injury, or becoming separated or divorced.

Informal debt relief plans can also be used to manage a wide range of debts. These include secured loans like car and mortgage loans, and unsecured loans like credit card and personal loans. This also extends to other types of debt like government debts, utility bills, medical bills, and speeding fines. This gives you the flexibility to pursue a debt relief option that suits your unique personal and financial circumstances, without resorting to more extreme measures like bankruptcy or insolvency.

Get Free, Independent Advice from a Debt Negotiator

To find out if an informal debt relief plan, also known as our Credit Score Protector Plan, is right for you, then speak to a certified debt negotiator. They will take the time to become familiar with your personal and financial circumstances, discuss the different types of debt relief options available to you, and help you choose a solution that meets your specific needs.

Plus, debt negotiators can negotiate with creditors on your behalf. They may be able to temporarily freeze interest and fees, lower the total debt amount, lower the monthly repayment rates, and even extend the settlement period, giving you more time to save up money. Best of all? Talking to a debt negotiator is free of charge, confidential, and does not impact your credit history.