Informal payment arrangements can be a perfect solution for temporary setbacks. Everyone experiences these from time to time and an informal payment arrangement can be a great way to get back on your feet without any extra financial consequences.
But what exactly is an informal payment arrangement?
Put simply, an informal payment arrangement is an agreement between you and your creditors that is not bound by legislation or a formal contract, hence the term ‘informal’.
And while it’s similar to a debt agreement, it’s not considered an act of bankruptcy, so it won’t go on your record or negatively affect your credit file. It’s a great way to settle debt with your creditors, ensuring that everyone is happy with the final outcome.
What does it actually do for me?
Provides a short term solution
An informal payment arrangement is perfect if you’re just in need of a short-term solution. If you’ve just experienced a temporary set back and you need a bit of help to get back to normal, this is a great option. Generally your creditors are willing to work with you if it means they can get you back to your original repayment schedule.
An informal payment arrangement can also help you maintain a better long-term relationship with your creditors, as they can see you’re committed to repaying your debts despite this setback. But keep in mind since this is only a temporary solution, you’ll need to renegotiate your terms with your creditors every one to six months.
Reduces & freezes your debt
Most creditors know that they may not always be able to recoup all of the money they’ve lent out, but with an informal payment arrangement they can still at least reclaim the majority of it. It’s a situation where some is definitely better than none, which might be the case if you leave it till later and end up having to declare bankruptcy.
With a debt agreement you may be able to reduce your overall debt by making monthly payments that actually fit within your budget. Your creditors may also decide to freeze your debt, that way you can catch up on the principal rather than worrying about interest money piling up, which again saves you money in the long term.
Protects your credit report
In some cases your creditors won’t contact any of the credit reporting agencies, so your credit report will remain clean or at least not take any further hits.
How does it differ from a debt agreement?
While debt agreements and informal payment arrangements offer many of the same benefits like relief from creditors, frozen interest and reduced debt, the main difference is that an informal payment arrangement will not go on your record and negatively affect your credit score. Since it’s not considered an act of bankruptcy, you can still maintain your current credit score, which is great for any future credit checks.
What are the drawbacks?
Informal payment arrangements are not protected by court orders or legislation, so you’re just relying on your creditor’s goodwill – they can technically cancel your arrangement at any time. This is highly unusual as long as you’re sticking to your plan, however this is why it’s important to seek expert help to negotiate your informal payment arrangement. Debt services companies often have long standing relationships with creditors, which goes a long way towards upholding arrangements and building trust.
If you’re dedicated to making your payments, an informal payment arrangement may be right for you. They’re great for short-term financial trouble and can save you money in the long term without affecting your credit. We’re here to help! If you think an informal payment arrangement might be right for you, please contact our friendly team at 1300 368 322.