Debt Agreement Changes: Everything You Need to Know
If you`re struggling with debt, you may have heard about debt agreements. These agreements can be a helpful tool for managing your debts and getting back on track financially. However, recent changes to debt agreement rules mean that it`s important to stay informed about how these agreements work and what your options are.
What is a debt agreement?
A debt agreement is a legally binding agreement between you and your creditors to repay your debts over a set period of time. Under a debt agreement, you may be able to reduce the amount you owe, make smaller, more manageable payments, and avoid bankruptcy. Debt agreements are often used as an alternative to bankruptcy for those who cannot afford to repay their debts in full.
What are the recent changes to debt agreement rules?
In 2019, the Australian government introduced changes to debt agreement rules to make these agreements more accessible and affordable. The key changes include:
1. Higher debt limit: Debt agreements can now cover debts of up to $86,000, up from $47,000 previously.
2. Longer repayment period: Debt agreements can now last up to five years, up from three years previously.
3. Lower set-up costs: Debt agreement administrators are now limited to charging a maximum of 20% of the debt agreement payments, down from 25% previously.
4. More protection for debtors: Debtors are now required to receive independent financial advice before entering into a debt agreement. This advice must be provided by a registered financial counselor.
What are the benefits of debt agreements?
Debt agreements can offer a range of benefits to those struggling with debt. Some of the benefits include:
1. Reduced repayments: You may be able to reduce your repayments to a more manageable level.
2. Debt consolidation: Debt agreements can consolidate multiple debts into one payment.
3. Avoid bankruptcy: Debt agreements offer an alternative to bankruptcy, which can have long-term consequences for your credit rating.
4. Legal protection: Debt agreements provide legal protection from creditors pursuing legal action against you.
What are the drawbacks of debt agreements?
While debt agreements can be a helpful tool for managing your debts, there are also some drawbacks to consider. These include:
1. Reduced credit rating: Your credit rating will be affected by entering into a debt agreement, and this can make it more difficult to access credit in the future.
2. Fees and charges: Debt agreement administrators charge fees for their services, and these can be substantial.
3. Limited debt types: Not all types of debt can be included in a debt agreement, such as secured debts like mortgage payments.
4. Limited debt amounts: The debt limit of $86,000 may not cover all of your debts, and you may still be left with significant debt after entering into a debt agreement.
What are your options for managing debt?
If you`re struggling with debt, there are a range of options available to you. These may include:
1. Negotiating with creditors: You can try to negotiate with your creditors to arrange a repayment plan that works for you.
2. Debt consolidation: You may be able to consolidate your debts into a single loan with a lower interest rate.
3. Debt management plans: These plans involve working with a financial counselor to develop a repayment plan that suits your needs.
4. Bankruptcy: While bankruptcy should be a last resort, it can provide relief for those with significant debt.
In conclusion, debt agreements can be a helpful tool for managing your debts, but it`s important to stay informed about the recent changes to debt agreement rules and to consider all of your options. If you`re struggling with debt, seek advice from a registered financial counselor to find the best solution for your situation.