What is an Informal Arrangement & When is it Appropriate?
Informal arrangements are agreements between you and your creditors that are not bound by legislation or formalised by contract. By employing the help of a debt counsellor it is possible to negotiate an arrangement with your creditors that will reduce your debt level or make a repayment plan that is mutually beneficial. A debt counsellor can arrange with your creditors for your debt to be reduced on the condition of meeting a specific schedule, this schedule is known as an informal arrangement.
The debt counsellor can act as an intermediary between you and your creditors. An informal arrangement can be reached without the assistance of an intermediary but it is beneficial to have the experience and expertise of a professional when dealing with complicated negotiations. Employing a debt counsellor can also take the emotional attachment out of a potentially stressful negotiation.
An informal arrangement is an arrangement that exclusively involves you and your creditors; there is no involvement from outside bodies. Nor is the arrangement governed by legislation, hence the informality of the agreement. As there are no other parties involved and there is no court involvement, the payment schedule that you develop is known as an informal arrangement.
In many cases, the informal arrangement does not cover the entire debt and is only a temporary arrangement. As an example, if you are:
- Unable to work because of illness or injury
- Earning less money
If you experience a change in circumstances such as this, maintaining repayments of your debts can become very difficult. In this situation an informal arrangement can be a very useful option for you to consider. An example of an arrangement would be to pay a reduced rate for a specified period of time or in lieu of you finding a new job or getting well.
Some of the benefits of informal arrangements are that:
It is an effective short-term solution
An informal arrangement can be a good short-term solution if you find yourself in financial difficulties. Often circumstances result in people having difficulties meeting their monthly obligations for only a couple of months. Through an informal agreement it is possible to arrange a period in which your creditors accept a reduced payment rate under the proviso that you will return to your original payment schedule. This is an uncomplicated way of bridging a gap that you otherwise would have had trouble negotiating. It also helps to keep in contact with your creditors to show that you are committed to repaying your debts. The better your relationship with your creditors the easier life will tend to be.
You may end up with a reduced debt
Often creditors will acknowledge that their chance of recovering all the money lent to you will not be possible. By offering an informal agreement you are demonstrating that you are committed to repaying your debts. However circumstances might dictate that it is impossible for you to repay all of the debt. In this situation creditors would rather recover some of their money than none at all, which might be the case if you declare bankruptcy. As a consequence they may be willing to accept a reduce debt level through negotiation. Ultimately an informal arrangement is much cheaper for creditors than pursuing a debtor through court proceeding or engaging a debt collection agency, so it may be mutually beneficial for you and your creditors.
Your debt may be frozen thereby saving you money
One of the reasons that debt is so difficult to manage is that interest is continually accruing on your debt. This will get you in a deeper hole if you are unable to meet your current payments. Through an informal arrangement it is possible for your creditors to agree to freeze the interest on your debts. This will enable you to focus on repaying the principal debt.
You may be able to keep your credit report clean
With an informal arrangement the creditor may still contact the credit reporting agencies and notify them of your current situation. In many cases they will not contact the credit reporting agencies and your credit report will remain clean.
The drawbacks of informal agreements are that they are not protected by court order or legislation. As a consequence they rely almost exclusively on your creditors' goodwill and they could theoretically cancel the agreement at any time. However, it is unlikely that a creditor would do this if you stick to the terms agreed upon in the arrangement. So as with most debt relief plans, informal arrangements require your dedication and have no value if you are unwilling to stick to the plan. Informal arrangements can be very effective as they are mutually beneficial to both parties and they can assist you in easing your debt burden.
If you would like to find out if an informal arrangement is the most effective way to eliminate your debt or would like to discuss your situation with a professional debt negotiation team then fill in the following form or call Debt Relief on 1300 781 034 and our staff will assist you in finding the most effective way to reduce your debt.