Informal Debt Agreement

If you are thinking about setting up an informal debt agreement with your creditors, this is what you need to know.

Who are your creditors?

Your creditors is anyone you currently owe money too including:

• credit card companies
• car loan
• personal loan
• gardener
• tiler / builder / handyman
• solicitor / other professional

How do you setup an informal agreement?

You will need to approach every creditor directly to discuss your situation and yes this may be difficult but preparation is the key.

Step 1

Document all of your outstanding debts in our Personal Debt Tracker.

Step 2

Work out how much you can reasonably afford to repay each creditor by completing a Spending Plan or budget. Add these amounts to your Personal Debt Tracker from step 1.

Step 3

Write a letter to each creditor outlining your situation and how much you will be repaying to them and when. Use this example as a guide.

Step 4

Although you can use Dear Sir / Madam in your letter at Step 3, you will receive a warmer response if you address the letter to the correct person.

Ring up each of your creditors and ask to speak to the accounts receivable person or department. When you are put through, grab the persons first name and ask for their last name for some correspondence you will be sending through. Then use these details to personalise each letter.

Step 5

Loans with banks or other financial institutions will need to be dealt with in person rather than a letter.

Use the same approach and feel free to take a draft letter along for you to refer to during the meeting.

Always ask to see a manager and setup an appointment if necessary. The manager is the person who can help you and make decisions on the banks behalf.  Things to ask for at a bank:

• a lower interest rate on your credit card
• longer repayment plan on your car or personal loan
• a consolidated loan

Step 6

Everyone likes to be dealt with personally as it makes us feel important and acknowledged.

Always acknowledge your debts as you did spend the money or hire the contracter.

Always take positive action and demonstrate you are trustworthy. This is why you should send the first payment installment with your letter from Step 3. If you don't have a cheque book, get a bank cheque for this first installment so you can track when the cheque is banked by your creditor.

Step 7

Always pay on time.  It is really important that you do pay on time once your agreement is accepted as you need to maintain a level of trust with your creditor so that you stay in control of your debts.

We all want to be paid the money that we are owed, whether that is your salary from your employer for all your hard work or payment from your clients. Most creditors would prefer to have the money paid in installments than never see it at all.

To make sure you never miss a payment, plan ahead. Make sure that each installment is received on time by your creditor by working out your repayment plan in line with your paydays.

Good luck