Factors to Consider before Signing a Debt Agreement

A debt agreement is a contract that is legally binding between you and the parties concerned – the creditor, debt collection company or third persons involved. Consequently, each party can legally enforce the terms of the agreement against you if you don’t comply with your contract. Learn about the things to keep in mind before signing a contract that can make or break your finances. Always take serious consideration before signing a debt agreement.

The debt agreement process

When entering into a debt settlement, you have to understand that the creditor expects you to be ready to pay your debts. So, prepare to negotiate a certain sum of money or asset to pay for a percentage of your combined debt. Make sure that you can afford to pay it over a limited period of time. In debt settlement, you don’t pay your creditors directly. Instead, you make repayments to the administrator of your debt agreement.

Negotiation takes a little bit of patience and persistence because creditors also know that once they agree to a particular amount, they cannot recover the full amount of debt anymore. Knowing that they cannot get back the full amount you owe, they may give you a hard time during the negotiation process.

Legalities of your debt agreement

A valid contract is an agreement where all the parties agree to it. Meaning, there is mutual consent between you and your creditor. It must state the object of the contract—or the consideration which is typically a sum of money, or asset paid by the debtor to the creditor. The agreement must not allow you to do something illegal in return of debt forgiveness or reduction of penalties. It is also important to be mentally capacitated to enter into an agreement. You must be mentally sound and at least 18 years old to ensure that you are competent enough to enter into a binding agreement.


It is important to note that the object of the contract or the “consideration” must be something to be negotiated upon. An agreement is impartial. It gives you the perfect opportunity to discuss and compromise on the terms of the debt agreement before reaching a final contract that is acceptable to you and your creditor. But, take note that there are non-negotiable contracts, but you can still look for ways to ensure that the terms will be satisfactory not only to your creditor, but to you as well.

The agreement must not contain provisions that disagree with the contract laws in your state. You can talk to an attorney to verify the terms of your contract before signing it. Or, you can educate yourself and check whether there are illegal terms in the contract that will jeopardize not only your finances but your reputation as well.

Negotiation points

Write down your objectives for entering into an agreement. What is your desired outcome? Do you want to pay your debts in full while paying for it at a lower rate? Or, do you intend to let go of your assets to finally eliminate your debt? Before you negotiate a contract, have a specific outcome in mind. For example, if you want to extend the loan term, then you should know exactly how long you would like the loan extension to be.

Before beginning negotiations, you should know where you stand. Are you financially capacitated to respect the terms of the contract? Take note of your financial standing and the surrounding circumstances that may prevent you from abiding by your agreement. It is also important to determine your bottom line. Know the highest repayment amount you can make and the lowest one that you think the creditor can accept.


Check other options

Do you think it’s time to give up and take up bankruptcy instead? If you have no income, and you’re not in any way capable of making even the minimum repayments because of unemployment, and you can’t meet your daily needs, maybe bankruptcy is a better idea. But, it will definitely ruin your credit score, take away your assets—and probably leave you on the streets. The only upside is that your debts will be eliminated.

If you think you can still get a job, improve your business or get any additional source of money to keep up with a minimum payment each month, debt agreement is a better idea.

It is important to note that debt agreement does not refer to debt consolidation. When you consolidate loans you simply roll your existing debts to a new loan; with lesser monthly repayment, lower interest rates and fees and in one easy payment method each month. While debt consolidation companies sometimes negotiate with creditors to lower the repayment each month, there are companies that simply pay off all the loans and charges a new rate to their customers.

Is debt agreement the right solution to your financial situation right now? Talk to us today!

Debt Consolidation

Is Debt Consolidation Still a Viable Solution?

Unfortunately for us, over the last few decades, we’ve been raking in a lot of debt. As we all know, the global economy has not been the best these past few years, and that has left people in uncertain financial situations, including multiple debts. Debt consolidation was offered as a solution and for a long time, it was one of the most sought after loans. Today, however, there are several alternatives to debt consolidation, so is it still the best option?

Informal agreement

A first option that comes as an alternative to debt consolidation is to make an informal agreement with the companies or institutions you owe money to. More often than not, your creditors will be willing to provide assistance in reworking the way you are paying your debt. Remember that it is in their best interest to work with you, and not against you. If you let them know that you are struggling, they may be able to help you by working out a deal.

Mortgage refinancing

There is an option that is very much alike debt consolidation and that is mortgage refinancing. This allows you to refinance your house and consolidate all of your repayments into a single one that may very well end up being lower than the one you had before. This is a good idea even if you are not in debt, but if you are having trouble repaying your mortgage.

Debt agreement

Now, a debt agreement is very much like an informal agreement, except that it’s formal, in that it is legally binding. In theory, this is the better option, since it does offer you some protection that is missing in an informal agreement. The catch is that not everyone is eligible for this kind of option, and not all creditors will be willing to create such an agreement with all their borrowers. Remember that there are also consequences you need to be aware of.

Personal insolvency agreement

A solution that may be extreme, but is actually a good option aside from debt consolidation is to create a personal insolvency agreement. You see, this choice provides you with more control than you would think and it offers you the chance to strike a compromise. This option comes with certain requirements and consequences. Of course, an even more extreme solution is to declare bankruptcy, which effectively eliminates your debt, but your assets will be seized. It will also appear on your credit history for 7 years.

All in all, there are many options you might consider if you find yourself in the situation of having multiple loans that you are struggling to pay off. They have advantages and disadvantages, and you may choose between them according to your personal financial situation. However, debt consolidation remains one of the most popular and most effective solutions, because of how convenient it is from all points of view.