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What Is An Informal Debt Agreement?

Rachel Horan

Rachel Horan

May 14, 20214 minute read
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If you are in debt that you cannot manage without financial assistance, an option you might want to consider is an informal debt agreement. An informal debt agreement is a payment plan designed to help you get on top of your debts and is an alternative to a formal debt agreement or bankruptcy.

On this page:

    What is an informal debt agreement?

    An informal debt agreement is a debt solution in which you can reduce your minimum repayments, pause your interest, and give yourself time to repay your debts with one repayment. Similar to a consolidation loan, an informal debt agreement is tailored to your specific financial needs and situation. It is negotiated privately with your creditors so that, if the creditor is not a part of comprehensive credit reporting, there is no impact left on your credit file.

    However, it is important to note that if the credit providers conduct comprehensive credit reporting, the repayment history will be evident on your credit file, meaning that prospective creditors will be able to see evidence of a ‘hardship arrangement’.

    What is the difference between an informal agreement and a formal debt agreement?

    An informal agreement is unlike a formal debt agreement because it will not directly impact your credit score. Entering into a Part IX (9) Debt Agreement will remain on your credit report for up to five years. On the other hand, an informal debt agreement will be privately negotiated and won’t be lodged with a credit reporting bureau. Therefore, it will not appear on your credit report and impact your credit score.

    Additionally, an informal agreement is not a form of bankruptcy, so your name will not be listed on the National Personal Insolvency Index. However, as it’s not regulated by the legislation of the Australian Government for Part 9 Debt Agreements, it is completely dependent on the willingness of both parties to comply with the terms. The creditor could choose to cancel the agreement at any time.

    What is a debt consolidation loan?

    Debt consolidation involves combining multiple debts, such as loans, credit cards, and utilities, into one repayment plan. If you take out a consolidation loan and manage it responsibility, it can improve your credit score in the long term. It can also be a solution to avoid entering a formal debt agreement or declaring bankruptcy. While it may initially impact your credit score due to another credit enquiry being recorded on your credit file, avoiding listing a range of providers due to loan settlement would be a positive. Additionally, having the status of any default listings updated to paid or settled (if they are included in the consolidation loan payout) can also be a plus.

    A consolidation loan allows you to clearly know when you will be out of debt and simplify repaying multiple debts. Instead of remembering multiple interest rates and payment dates, all of your credit will be consolidated by the lender into one payment plan.

    Informal debt agreement vs. consolidation loan

    There are a few key differences between an informal debt agreement and a consolidation loan. While they are both used as tools to assist people in getting on top of their debts, they function differently as outlined in the table below:

    Informal Debt Agreement Consolidation Loan
    • It can allow you to pause or reduce the interest and fees on your debts.
    • It may help you negotiate the amount owing to reduce payable debt.
    • You can choose to pay the amount with a lump sum payment or over time.
    • It can allow you to negotiate a complete waiver of debts.
    • Creditors are not obliged to agree or stick to the agreement and can void it at any time.
    • It is not protected by Australian Government legislation.
    • One interest rate is paid on the loan which can reduce the overall interest and fees paid.
    • Typically, with this loan, you won’t need to negotiate with the creditors.
    • It can be paid in manageable instalments over time.
    • There are debt consolidation laws in place to protect consumers.

    3 ways to get on top of your debts

    If you are struggling to get on top of your debts, there are some options you may wish to consider before entering an informal debt agreement.

    1. Overhaul your debts

    In order to get on top of your debt, it’s important to know exactly how much you currently owe. First step is to look at all of your outstanding loans, credit cards, and lines of credit that you are currently paying off and calculate how much you have left to repay (including interest and fees). This can help you visualise exactly how much you owe, and whether an option like an informal debt agreement or a consolidation loan may be helpful.

    2. Create a budget and stick to it

    Taking into account what you earn, how much debt you owe, and general living expenses, it can be helpful to create a budget. That way you can see whether there are any non-essential expenses you can go without until your debt is under control.

    3. Make your repayments on time

    By making your debt repayments on time, it can help ensure that your credit remains intact and you don’t incur additional fees that can increase your overall debt. Most lenders allow you to set up a direct debit to avoid having to manually transfer funds on payment dates. By doing this, all you need to worry about is ensuring there’s enough money in your account to cover your repayments.


    Copyright © www.jacarandafinance.com.au Jacaranda Finance Pty Ltd ® ABN 53 162 078 195 Australian Credit Licence 456 404, Pawnbroking License Number 4221738. The information on this web-page is general information and does not take into account your objectives, financial situation or needs. Information provided on this website is general in nature and does not constitute financial advice.


    Rachel Horan
    Rachel Horan

    Written by Rachel Horan

    Rachel Horan is a Content Writer for Jacaranda Finance. Rachel has previously produced content for Brisbane City Council, Black & White Cabs, and Clubs Queensland. She has a Bachelor of Mass Communication with Distinction from the Queensland University of Technology.

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