If you’re suffering financial hardship, struggling to get on top of your debt and wanting to stop the harassing phone calls from creditors, an informal debt arrangement might be for you.
Being in debt is hugely stressful. When your debt only seems to increase, living life can become exhausting and frustrating. It can disrupt your sleep, your relationships are affected and even everyday tasks, like buying groceries, can seem overwhelming. The impact of the stress can lead to physical health problems, including decreasing our capacity to fight off illnesses – which is the opposite of what we all need right now.
To keep yourself from drowning, you could take out more loans or use multiple credit cards, but the harder you try to get out of debt, the deeper you sink, and sometimes if you are only paying off the interest, it can feel like you are trapped.
An informal debt arrangement with your creditors may include any of the following:
- Agreeing to an amount you can reasonably afford to pay
- Giving you more time to pay
- Agreeing to re-negotiate the loan
- Settling for a lesser sum
- Freezing the interest for a period of time
This will stop creditors from calling and allow you to get on with living.
An informal debt arrangement gives you the time and freedom to settle your debts at a pace you can afford – often at a reduced final amount – stopping the creditors from calling and allowing you to get on with living.
What is an informal debt arrangement?
An informal debt arrangement involves entering into informal payment arrangements with your creditor(s) to enable you to pay your debts off over time – potentially deferring payments until you get back on your feet or making your payments more management and affordable.
There is no “one size fits all” when it comes to financial hardship. Everyone’s situation is different and likewise informal debt arrangements comes in all shapes and sizes. Your Fix Bad Credit debt expert will conduct a comprehensive analysis of your unique financial situation to determine repayment arrangement options that work for both you and your creditors.
Our legal team is then poised to enter into creditor negotiation processes with your creditors on your behalf. Our creditor negotiation process involves negotiating with your creditors to change the terms of your current loans to make your debts more manageable and affordable.
What might informal debt arrangements involve?
The negotiated new payment plan could include paying your debts in a single, lower lump sum or continuing with a different repayment plan involving one, or a combination, of the following:
- A debt moratorium – also known as a payment holiday or payment deferral, to either stop or reduce your payments and interest over a short period of time (usually between 3 to 12 months) to enable you to get back on your feet or to put other arrangements in place.
- A longer-term informal arrangement – a long term informal arrangement can last several years and often involves reducing your minimum repayments, and/or reducing or freezing the interest owed over the period if you need more time to get back on your feet or to put other arrangements in place.
- Debt negotiation – this involves discussions with your creditors to informally renegotiate the terms of your loan. This might mean settling the debt for less than the full amount, lower interest rates, reduced fees and/or extending the length of the loan to reduce the size of your minimum payments.
- Debt settlement – If you have access to a lump sum, a debt settlement may help. A debt settlement is an informal arrangement with your creditors that offers less than the full amount you owe in order to wipe out the debt completely.
What are the advantages of informal debt arrangements?
Unlike formal debt arrangements, such as a Formal Debt Agreement, Personal Insolvency Agreement or Bankruptcy, informal debt arrangements are a low-risk option to enable you to get back on your feet quickly and back in control of your finances. Informal debt arrangements are unlikely to affect your credit score. Even if your creditor does choose to record your informal arrangement with a credit reporting agency, this isn’t likely to have a significant impact. Formal Debt Agreements or Bankruptcy can stop you from getting credit for up to five years. An informal debt arrangement will have far less of an impact, meaning you can get back to living your best life quickly.
Other benefits of informal debt arrangements include:
- They don’t require a good credit record nor are there eligibility requirements.
- Collection calls will usually stop.
- Not all of your creditors need to agree to an informal debt arrangement.
- They don’t affect your work qualifications or professional licenses.
- They don’t affect your ability to run a business or travel overseas.
- You’ll make affordable payments based on a realistic budget.
- Any debts you have can be included in an informal debt arrangement.
- You can also usually alter the terms of the arrangement periodically to suit changing circumstances, making them a lot more flexible than many alternatives.
What are the disadvantages of informal debt arrangements?
- Informal debt arrangements do not offer the same protection as formal agreements. This means, potentially, a creditor could still pursue legal action against you.
- Creditors are under no obligation to freeze payments or interest rates, reduce fees, or cut the amount you owe so Informal debt arrangements can involve substantial negotiation with your creditors and are often only a temporary solution.
- They are not legally binding, so depending on the terms, informal debt arrangements may need to be renegotiated with your creditors regularly.
What do you need to know before entering into an informal debt arrangement?
Understanding the terms of an informal debt solution is key before entering into any repayment plan. You should select an option which is most favourable to you, so your financial situation isn’t impacted even further. Don’t be afraid to ask questions.
If a part of the agreement or contract is unclear to you, make sure to clarify anything first before signing on the dotted line. Negotiating and managing informal debt arrangements can be complicated and time-consuming. We recommend you talk to a debt expert about your options.
For more information on whether informal debt arrangements might be an option for you, call one of Fix Bad Credit’s debt experts on 1300 406 172. Our debt experts can help you assess your financial situation for free and using their in-depth knowledge of the credit law and debt processes, they are able to identify debt solution options tailored for your specific personal financial circumstances.
Debt is one of the few stressors in life that doesn’t go away. The worry is always there, along with the feeling that there is nothing that can be done about it. Money and debt worries cause heavy emotional and mental burdens, affecting your health, your work and your relationships. But just know you’re not alone. If you’re feeling overwhelmed by money matters, we’re here to help you find relief from your debt stress. Talking about debt can be daunting. It’s hard to know where to start or what your options are.
However, you can take a small step right now by picking up the phone.