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What are Informal Debt Agreements?

An informal agreement is an agreement a debtor makes with his or her creditor, without having to endure the legally binding process that impacts their credit score. Often, a debt counsellor will negotiate these terms to find a mutually beneficial agreement, but a debtor may also find he or she wants to contact the debtors and negotiate on his or her own behalf.

If you’re thinking about refining your debt repayments and getting back on track, consider an informal debt agreement as the best possible option for both parties. We’re going to discuss more about informal debt agreements and how they can help you put your best foot forward when gaining control over your finances. Below is a check list provided by Dealing With Debt to help explain negotiating new terms for unmanageable debt.

  • Avoid the National Personal Insolvency Index list
  • Reduce your repayments
  • Find temporary relief with a waiver
  • Reduce interest rates on the debt or offer a payoff amount that’s lower than the original total
  • Determine if an Informal Debt Agreement is for you

Avoid the National Personal Insolvency Index list

When entering a Formal Debt Agreement, a person agrees to have their name listed on the National Personal Insolvency Index (NPII) for 5 years. If a person becomes full bankrupt, they’ll remain on that list forever. For a fee, anyone has the ability to access the NPII list, which may make future financing very difficult.

An informal debt agreement serves both the debtor and the creditor by giving the debtor the opportunity to repay the loan under new, negotiated terms, without the penalty of placement on the NPII.

Reduce your repayments

An informal debt agreement produces multiple, flexible outcomes. The key is to find what works for you and the creditor, and keep your name off the NPII. One of the ways you might accomplish this is through negotiating a lower repayment, and extending the timeline of the loan term.

Find Temporary Relief with a Waiver

Another option with an informal debt agreement would be to find temporary relief through delaying your repayments for a period of time. You can present proof of your inability to make repayments, and request an amount of time to delay those repayments until your circumstances improve.

Reduce Interest Rates on the Debt or Offer a Lower Payout Amount

Two other viable options for reducing debt are to either reduce interest rates on an extended line of credit that you find you cannot maintain, or to offer a payoff amount that satisfies the creditor.

Determine if an Informal Debt Agreement is for you

There are a number of ways to get out of debt, and an informal debt agreement might just be your answer. In order to find out your best options for reducing your debt as soon as possible, it’s helpful to reach out to a debt counsellor.

A debt counsellor can evaluate your circumstances, help you develop a budgeting plan, and even negotiate with creditors on your behalf.

Take control of your debts today by considering informal debt agreements in lieu of a formal debt agreement. Think about speaking with a debt counsellor to assess your financial situation and advise you of your next best move.



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