If you conduct a search in Google, for a definition of debt agreements, you will be given an option to select from some of the most popular searches conducted on this subject – one of these being “Part 9 Debt Agreement Loans”.
Consumers looking for a debt consolidation loan often end up with a debt agreement instead. They are happy to sign all documents given to them, after all they have the opportunity to reduce their debts to only a fraction of original balances, make reduced repayments in full settlement of debt and while doing so incur zero percent interest on the outstanding balance. It sounds too good to be true. Well you do get everything that is promised to you.
Unsecured debt is reduced and debt repayments aligned to your income so that you can afford to maintain these for the duration of the debt agreement. The only aspect of the arrangement that is poorly understood is the impact of a debt agreement on the applicants credit history.
Why take up a debt agreement instead of a consolidation loan?
For most people this is not a choice. If you can qualify for a consolidation loan then a debt agreement would not be a suitable debt solution. In legislation to qualify for a debt agreement you must claim to be insolvent and back this up in your submission to creditors showing that your current income is not sufficient to meet your repayment obligations.
If you are successful in demonstrating this then by definition you would not qualify for a new loan and it is pretty much a debt agreement or nothing. But in some cases doing nothing may put you further behind in your repayments. If that occurs one of the creditors may actually force you into bankruptcy ( http://www.debtsolutions.com.au/bankruptcy/ )
Are debt agreements inferior to a consolidation loan?
Not at all. Debt agreements deliver everything that they promise. You can in fact come out of a debt agreement completely debt free. A signed debt agreement will stop debt collectors from chasing you for payment, and can finally return the applicant to some kind of normality. Only those who have gone though sleepless nights caused by financial stress can understand the value of this solution.
However with a debt agreement you do not get a new loan. What you get is a single affordable debt payment and peace of mind that eventually your debt problems will go away.
Unfortunately a debt agreement stays on your credit history for up to 7 years after it is signed. It highlights to future lenders that you have experienced debt problems in the past 7 years and this may limit your ability to qualify for further finance.
Why are consumers confused?
Consumers are confused because debt agreements are advertised as “debt consolidation”, which of course is what they offer. They allow a person to consolidate all of their unsecured debts into a single repayment. However this is not a loan. Debt agreements ( http://www.debtsolutions.com.au/debt-agreements/ ) are a fairly recent debt solution, introduced into the Australian personal insolvency legislation in 1996, as an alternative to bankruptcy. As a consequence many consumers assume that debt consolidation ( http://www.debtsolutions.com.au/debt-consolidation/ ) is always a new loan.
What can be done to remove confusion?
People who are entering a debt agreement need to be offered an explanation of the definition and implication of entering into such an arrangement in plain English.
This can be a standard document developed by ITSA that should be offered to all debt agreement applicants. In doing current consumer misunderstanding will be effectively and consistently addressed. Alternatively call Debt Solutions on "1300 DEBT SOLUTIONS" or 1300 332 876