If your finances have gotten out of control and you are struggling with heaps of debt, a Debt Agreement can help you get your financial life back on track.
However, as with just about everything to do with debts, a Debt Agreement will impact your credit rating.
Here’s what you need to know about Debt Agreements and how they will affect you.
A Debt Agreement will be recorded in your credit file as a default.
This signals to future creditors that you have failed to meet your obligations on previous loans so it will hurt your overall credit rating.
This default will remain on your credit report for a minimum of five years. This time period starts from the date you enter into the Debt Agreement.
After those five years have passed, you should begin to see an improvement in your credit score.
In addition to lowering your credit rating, a Debt Agreement will also make it more difficult for you to take on new debts.
Banks, credit unions and other lenders will see the Debt Agreement in your credit history. This may make them wary of extending credit to you as you have defaulted on your financial obligations in the past.
Although this may seem like a negative, it can actually be a good thing as it will help to prevent you from falling into the same traps that pushed you into the Debt Agreement in the first place.
When you enter into a Debt Agreement, your creditors will typically be more willing to work with you to accommodate your needs.
They take the fact that you are choosing a Debt Agreement as a sign that you are serious about repaying your debts. Because of this, they may be more flexible on your interest rate or may forgive a portion of the amount you owe as a show of good faith.
This can help you get back on track towards improving your credit score more quickly.
Before entering into a Debt Agreement, you may have already defaulted on some or all of your debts, which can seriously harm your credit rating.
However, once you have signed a Debt Agreement, your creditors cannot add any new defaults to your credit file.
This gives you the opportunity to get back on top of your credit and to work towards a clean credit history once the default from the Debt Agreement is removed.
Once you have completed all of the repayments as outlined in your Debt Agreement, it is almost like starting over with a clean slate.
Though the Debt Agreement will stay in your credit file for at least five years, you won’t have any additional defaults, as explained in the previous section.
Because of this, you’ll be able to start improving your credit rating again right away.
For most people, it takes about three to six months after the conclusion of the Debt Agreement to see your credit score return to a normal level.
Before entering into a Debt Agreement, it is important to ensure you have all the facts about the associated pros and cons.
Here at Debt Negotiators, we provide free financial advice to help you evaluate your options.
We can help you determine which course of action makes the most sense for your financial situation.
Reach out to us today for more information about Debt Agreements and help with deciding if this path is best for your needs.
Get in touch with us today to get started.