Will a Part 9 Debt Agreement help my credit in the future?
Debt agreements can seem like a great alternative from being hassled by debt collectors feeling overwhelming debt pressure, but the reality is far more grim than a Saturday morning wake up call, from a debt collection company.
We recommend you seek proper advice, as once you sign for a debt agreement there’s no way out not even if you pay the balance out in full. You are going to have it stuck to your name for 5 full years.
If you are in overwhelming debt, Financial counsellors can help you and are available in every state and territory. Their services are free, independent and confidential. They can provide advice about your current and past financial situation and recommend the best option for you to deal with unmanageable debt.
To speak with a free financial counsellor, you can contact the National Debt Helpline on 1800 007 007.
Before considering bankruptcy or a debt agreement, make sure you explore your other options for dealing with unmanageable debt.
Options could include:
- asking for more time to pay
- negotiating a flexible payment arrangement
- offering a smaller payment to settle the debt
With a debt agreement, your creditors will agree to accept an amount of money that you can afford. You pay this over a period of time to settle your debts. It’s basically stretching your repayments and minimising or freezing the interest. You can do this informally also.
Another alternative is to ask for a Moratorium. This is interest freeze in most cases can place a hold on your payments. This may give you the time you need to get yourself back on track and will not affect your Credit file negativity.
A debt agreement is not the same as a debt consolidation loan or informal payment arrangements with your creditors. Truthfully, the best way to deal with your creditor is work with them first. Establish a budget yourself and talk to them about your situation. Gather as much supporting documentation that you can find (such as payslips, Centrelink statements, bills and bank statements), and provide them with a snapshot of your financial circumstances by way of completing a statement of financial position. (SOFP)
The Severe consequences of a debt agreement are the main thing to consider. Entering a debt agreement may have a serious impact on you. It may affect your ability to get credit in the future and will appear on a public register for a limited time.
Once you’ve signed a debt agreement:
- It’s listed on your Credit file for five years. The same as a bankruptcy as it is considered an act of Bankruptcy.
- You must tell new credit providers about it if you owe more than the credit limit.
- Your name is on the National Personal Insolvency Index for five years or more.
- You may not be able to work in certain professions
Debt agreements don’t fix your Credit file, they make it worse. In the long run they do not make things easier if you are looking to borrow. If you pay them out early, there is no brownie points for doing so.
If you are looking to clean a bad credit history or restore your credit history then a debt agreement is not the solution. There are much more flexible options to clean your credit report.
Just do your homework and don’t be bedazzled by the consultant that tries to sell you the ‘get out of jail free card’ and the promise of debt relief it’s not your only option. There are far more practical options that don’t involve an act of Bankruptcy. Even a full bankruptcy its self may be the better option than having to pay out debts that you cannot afford, it would affect you for the same amount of time as a Part 9 debt agreement with regards to your credit report. You really need to seek independent advice before making such an important decision.