An informal debt agreement is an arrangement between a debtor and a creditor where debtor has to pay what he owes to the creditor as per the agreed terms.
This is different from a formal debt agreement because there is no legal binding in this arrangement between two parties and it does not have any impact on the credit score of the debtor. A debt counsellor or manager is usually involved to settle the terms and make the arrangement beneficial for both the parties.
Pros and cons of informal debt agreement:
As like any other arrangement informal debt agreement also comes with certain advantages and disadvantages. Lets discuss these below:
The biggest advantage of an informal debt agreement to the debtor is that it does not have any impact on their credit score of the debtor and this won’t affect their credit history.
In informal debt agreement gives the opportunity to the debtor to negotiate a reduction in payment amount. They can pay a lump sum lower amount than they owe. Creditor can accept this if the sum the debtor is willing to pay would sufficiently pay enough off the debt. This is of great benefit to the debtor as he gets enough time to pay off lower some of debt so he can go for debt consolidation in Australia, make budget and plan accordingly.
The debtor can get an extension in the agreed time in which they have to pay the sum they owe, if they feel that the time allowed is not sufficient for them to pay off the sum in whole.
There is also a possibility of negotiating a lower interest rate if the debtor is unable to make the debt payments.
Informal debt agreement also comes with the option in which the debtor can negotiate to get a waiver on the debt for a certain period of time. This will help them arrange for the money.
The debtor isn’t forced to tell anyone about his debt like in certain forms of legal binding agreements or like in bankruptcy. This can not have any impact on credit score and the debtor won’t be listed in the National Personal Insolvency Index as well.
The biggest drawback of informal debt agreement lies with the fact that these are not protected by any legislation or by any court order. This is solely dependent on the willingness of both the parties. These arrangements will be of no value if any of the party is not wiling to stick to the terms of agreement. Informal debt agreements are largely dependent on creditor’s goodwill as they can cancel the agreement any time. However, why would the creditor cancel the arrangement if the debtor is following the terms agreed.
