If you’re overwhelmed with your current financial situation, you may have considered a Formal Debt Agreement. Have you also considered the options available and benefits of an Informal Debt Agreement?
Before jumping to a Formal Debt Agreement, take some time to ask yourself if you can’t find a middle ground and negotiate with your creditors to pay off your debts. The last thing you want is a legally binding agreement that lands your name on the National Personal Insolvency Index (NPII).
- The benefits of an Informal Debt Agreement
- The effects of a Formal Debt Agreement
- Financial Counselling to help you decide
The benefits of an Informal Debt Agreement
Informal Debt Agreements serve as a mutually beneficial agreement between the debtor and creditor. The debtor can request a change in the terms of the loan or extended line of credit, to alter anything from the interest paid on the loan, the minimum repayment amounts, the total payoff amount, or a waiver for temporary circumstances that prevent the debtor from being able to make a payment.
The advantage to taking this route with debt management is that the debtor doesn’t risk any negative impacts on his or her credit score. It allows the debtor to apply a new strategy with the intent to continue paying off debts. This new agreement provides debtors an opportunity to do it before a default or collections process ensues. Most importantly, the damage to the credit score won’t be near as lengthy and inhibitory as a Formal Debt Agreement, or personal insolvency.
Another key advantage to an Informal Debt Agreement is the debtor’s ability to get creative with how they negotiate paying down their debts in a more suitable fashion. There are so many ways to find a middle ground with a creditor and meet in the middle so debtors have a chance to salvage their credit scores, while creditors have the confidence they will recoup the money they leant.
The effects of a Formal Debt Agreement
Formal Debt Agreements serve as an alternative to filing for bankruptcy. A Formal Debt Agreement is also an arrangement made by you and your creditors for how to pay off your debts. The drawback is that you must meet certain qualifications in order to acquire one.
With a Formal Debt Agreement, you will have to stick to a particular budget for the entire term of the Agreement, and you must declare all assets and liabilities. They are placed on public record and will appear on your credit report. This could inhibit your chances of obtaining credit in the future. It will also impact any jobs that require credit checks as part of the licensing or hiring process.
Seek financial counselling to help you decide
Contact a debt counsellor if you have debt concerns and feel overwhelmed with how to get back on track. They’ll be able to assess your financial situation for free, and provide you with the skills to form- and stick to- a budget. They can also help you with your negotiations if you should choose an Informal Debt Agreement.
