People are attracted to the idea of a Debt Agreement because of its many benefits, which include reduced payments, the freezing of interest rates, and the legal protection you will have from your creditors. It is important to realise, though, that entering into a Debt Agreement does come with consequences, the main one being its effect on your credit rating.

As you can well imagine, were there no negative consequences to a Debt Agreement, everyone would want to do one. Debt Agreements were designed to add fairness to the personal insolvency system, so it would be counterproductive to their entire existence if people were proposing them simply to get out of paying all of their debts back. And so to keep the system fair and ensure that the only people doing Debt Agreements are those who really need to, there is a default placed on your credit file, which lasts for a minimum of 5 years (unless if the agreement runs longer than 5 years) from the date you lodge the Debt Agreement Proposal with AFSA.

The mark on your file also serves another purpose, as it stops you from gaining more credit whilst you are still party to your Agreement. It seems strange to imagine that anyone would want more debt after finding themselves needing a Debt Agreement to manage what they already have, but the allure of credit really is that strong. Were you to get yourself into even more debt and still have your Agreement to pay, you would most likely need to declare bankruptcy, which is exactly what Debt Agreements were designed to avoid.

And finally, the fact that you are willing to have a default placed against your name is evidence for your creditors that you are in need of assistance. A Debt Agreement is voted on by your creditors and you need the majority of them in both number and value to say yes to it for it to be approved. If they thought that you didn’t really need to do it, then there would be no way that they would be willing to miss out on all of the repayments that they are entitled to.

A credit default is an unfortunate side effect of entering into a Debt Agreement, but it is also a very necessary one. And for many people, the benefits of a Debt Agreement far outweigh the negative aspects of having a mark on their file. If you are struggling with unmanageable debt, it may be worth your while to speak to a professional about the positive and negative consequences of a Debt Agreement so that you can weigh them up and make an informed decision. Call us today at the Debt Agreement Advice Centre on 1800 653 485 for impartial and obligation-free advice.