Are you considering a debt agreement but wondering how it might affect your credit file? There is no easy way to get out of debt. It all takes hard work and commitment. While there are a number of solutions available to help you overcome your debt, none of them are without consequence. Depending on your situation, those consequences might not be as severe as you think.
Your credit file is a record of your financial habits and determines your risk rating for future loans. Having a default on your credit file, such as late payments, can make it difficult to secure a loan. It’s no wonder that you would want to protect it.
A Part 9 Debt Agreement is a government legislated agreement which allows you to reduce the overall amount of debt you owe. It also freezes the interest and fees over the repayment term, which is usually five years. You will be left with one affordable, manageable repayment. A Debt Agreement will also be noted on your credit file for five years, much like a default.
If you are struggling to make your repayments and you are feeling the stress of being harassed by creditors, a Part 9 Debt Agreement may be an option to relieve this stress.
Do you already have a default on your credit file?
If you are behind in repayments and being harassed by creditors, chances are, you could have at least one default already noted on your credit file. A default will last for five years and while it is on your credit file, it can be difficult for you to access credit through a loan or line of credit.
For a creditor to mark a default on your credit file, your debt must be more than $150 and at least 60 days overdue. They can then initiate collection action and begin the process of marking a default on your credit file. If you don’t comply within this period and pay the debt, you will receive a default.
To check if you have received a default on your credit file, you can request a FREE copy of your credit file at mycreditfile.com.au. Your credit file will have a record of your debts and list any defaults and judgements against you.
How will a Part 9 Debt Agreement affect your credit file?
The day you enter a Part 9 Debt Agreement, a financial default is marked on your credit file, where it will be listed for five years. Every time you apply for a new loan or a credit card during this five year period, the creditor will be able to see that you are in a Part 9 Debt Agreement and will note you as a high-risk client, making it difficult for you to secure a loan.
However, this is also why it is a bulletproof system designed to protect your credit file. How? For five years, all of your unsecured debts will be repaid through an affordable agreement. This prevents you from accumulating further defaults on unsecured debts and therefore won’t affect your credit file for more than five years. At the end of your Part 9 Debt Agreement, your unsecured debts will have been repaid and your credit file will be clear, allowing you to start fresh.
What happens once the Part 9 Debt Agreement is complete?
The day after you complete your Part 9 Debt Agreement it will be removed from your credit file. A credit file shows financial institutions your financial history so they can determine whether or not you are a good candidate to lend money to. As you have been unable to get new loans and debts for the last 5 years, your credit file will have very little information, which can negatively impact your credit score. It may take 3-6 months to build your score back up to normal.
We recommend you apply for a small loan, one which you know you can afford the repayments for. By regularly making the repayments on this debt, you are showing to potential lenders you are a good candidate for a loan and your credit score will increase. Once you have been able to repay your small loan, you will be in a position to apply for normal lines of credit without issue.
Common Concerns with Part 9 Debt Agreements
I want to buy a house within the next five years.
It’s fantastic to set financial goals as they encourage you to figure out a budget and properly manage your money. Completing your Debt Agreement is your best shot at repaying your debt and preserving your credit score bringing you one step closer to successfully applying for a home loan. You can the achieve the homeowners’ dream!
Should I just declare Bankruptcy?
Bankruptcy involves a number of restrictions and obligations which can be avoided in a Debt Agreement. At Debt Rescue, we always recommend the solution which is best suited to your situation. Bankruptcy is often the last resort because of the impact it has on your life, not just financially.
I don’t need a Part 9 Debt Agreement; I just want to consolidate.
A debt consolidation loan is essentially a personal loan that you take out to cover your debts. You can then move forward just making the one repayment. However, if you have a default on your credit file, you may not be successful in getting in a personal loan. This is when you should consider a Part 9 Debt Agreement, and begin your journey to financial freedom.
You can learn more about Part 9 Debt Agreements here or give us a call on 1800 00 3328. Our friendly Case Managers will be able to provide you with more information, advice and assistance.