By David Pilley on February 3, 2011
.JPG.aspx) A debt agreement is just that: an agreement between you and your creditors to pay back your debt. A debt agreement sounds just like a debt settlement, and you’re not wrong in thinking that. While the final result of a settlement is most often a lump-sum payment, a debt agreement allows you the option of a monthly payment plan. In both situations, the amount of debt you have to pay should be lower than the original amount of debt.
To get a debt agreement, the number one reason is that you are financially insolvent. Being insolvent simply means you are unable to pay back your debt in a timely manner. In order to be considered for a lowered amount of debt, you must be able to show your creditors that you are unable to pay the entire amount. Proof of insolvency would include losing a job, recent medical bills, or a change in financial situation resulting from divorce.
Also keep in mind that you cannot file for bankruptcy if you are seeking a debt agreement. If you have declared bankruptcy, your debts will be discharged. This might sound like a good option, but bankruptcy can damage your credit for years, and you will have a more difficult time acquiring future loans. If you are insolvent, you should always look at your options before filing for bankruptcy.
The final product from a debt agreement is the payment plan. It will either be a one-time payment, due within a couple of months, or a restructured payment plan that you will pay off over the course of a few years. With the final payment plan, you should always ask for it in writing before making any payments.
A responsible creditor will supply you with a printed contract, laying out every aspect of your new payment plan in great detail. The contract should first tell you the total amount you will be paying, as well as the date it was issued. If there is a grace period, the contract should also tell you when that ends and when you should make your first payment. If the plan is a lump-sum, you should be given a deadline of payment before interest begins accruing.
With a monthly payment plan, there should clearly be a minimum monthly payment, as well as which day of the month the amount is due. Information on late payment fees should also be explicitly stated. The contract should also state the interest rate that accrues to the unpaid balance each year. Finally, the contract should give the date by which the entire balance should be paid, as well as a warning that the creditor can take legal action if there is a missed payment or if the entire balance is not paid off by the date given. You and your creditor will sign the form, and there should be a physical address to mail your payments.
If all of this information is spelled out, you should have no problem with your debt agreement. Make sure to keep your creditors informed of your financial situation not just to avoid penalties, but also to build rapport for future loans.
Note: A debt agreement that includes a payment plan is a great way to stop the bleeding when an account is seriously delinquent. For multiple accounts, a debt management program may be necessary.
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