Worked Examples and Checklists
How much does a debt agreement cost? A worked example against repaying in full
An illustrative Australian debt agreement costed line by line, with administrator fees, what creditors receive, and comparisons with repaying in full, a frozen-interest plan and bankruptcy.
A debt agreement costs you the total of all the payments in the agreement plus any set-up fees, and part of what you pay goes to the administrator, not your creditors. In the illustrative example below, a person with $40,000 of unsecured debt pays $780 a month for 36 months — $28,080 in total — plus $500 of set-up fees, compared with roughly $51,850 to repay the same debts in full over 3 years at their current interest rates, or $40,000 with interest frozen in an informal plan. The debt agreement is cheaper in dollars, but it brings a National Personal Insolvency Index record for at least 5 years and a credit report listing, and if payments fall 6 months behind it generally terminates with the original debts revived. Always compare the total cost with the free alternatives before signing.
This example is part of the debt option decision checklist. Figures and fee levels are illustrative, not quotes or industry standards.
The household
Sam lives in western Sydney, earns $72,000 after tax and rents. Sam owes:
| Creditor type | Balance | Rate (illustrative) |
|---|---|---|
| Credit card 1 | $14,000 | 21% |
| Credit card 2 | $8,000 | 20% |
| Personal loan | $15,000 | 17% |
| Buy now pay later and a phone bill | $3,000 | n/a |
| Total unsecured | $40,000 | about 17.7% weighted average |
Sam's budget leaves about $850 a month after essentials and a small buffer. Sam is under all three debt agreement limits.
Option 1: keep paying in full
To clear $40,000 in 3 years at about 17.7% average interest, Sam would need about $1,440 a month, totalling about $51,850. That is more than Sam's surplus, so it is not realistic without cutting other costs. Over 5 years the repayment drops to about $1,009, still above the surplus, and the total rises to about $60,550.
Option 2: counsellor-negotiated plan with interest frozen
A financial counsellor asks each creditor to freeze interest and accept payments for 4 years. If all agree, $40,000 ÷ 48 = $833 a month, total $40,000, no fees and no insolvency record. The risk is that some creditors refuse or later restart interest; the plan is not binding unless each creditor agrees in writing. See negotiating a payment plan or settlement.
Option 3: debt agreement
A registered administrator proposes $780 a month for 36 months.
| Item | Amount (illustrative) |
|---|---|
| Total payments, 36 × $780 | $28,080 |
| Set-up fees paid separately | $500 |
| Total cost to Sam | $28,580 |
| Administrator's share of payments, assumed 20% | $5,616 |
| AFSA's realisations charge and other deductions, assumed | about $1,000 |
| Paid to creditors | about $21,460 |
| Creditors' return | about 54 cents in the dollar |
| Debt released on completion | the rest of the $40,000 |
Ask any administrator for these figures in writing. The administrator's share and the deductions vary by firm and proposal; the figures here are assumptions for the example. Run your own numbers in the debt agreement cost estimator.
Option 4: bankruptcy
Sam's assessed income of $72,000 is below the base income threshold of $77,886.90 from 20 September 2026, so no income contributions would be payable unless income rose. Sam has no assets above the protected limits. In dollars, bankruptcy might cost Sam very little, but Sam would face 3 years of restrictions: travel only with trustee consent, credit disclosure duties, and possible effects on work. See how bankruptcy works.
Side by side
| Repay in full (3 yrs) | Frozen-interest plan (4 yrs) | Debt agreement (3 yrs) | Bankruptcy | |
|---|---|---|---|---|
| Monthly cost | about $1,440 | about $833 | $780 | $0 at current income |
| Total cost | about $51,850 | $40,000 | about $28,580 | small, mostly non-financial |
| Credit report | Normal, if paid on time | Possibly defaults or hardship flags | 5 years from the agreement, or 2 after it ends if later | 5 years from bankruptcy, or 2 after discharge if later |
| NPII record | None | None | At least 5 years | No removal date |
| Binding on all creditors | n/a | No | Yes | Yes |
| Main risk | Unaffordable | Creditors refuse | Terminates after 6 months' arrears | Restrictions; assets vest in trustee |
What changes the answer
- If Sam's income rose to $95,000 after tax, bankruptcy would mean contributions of about ($95,000 − $77,886.90) ÷ 2 = $8,557 a year, about $25,670 over three years — close to the debt agreement total.
- If Sam owned a car with $15,000 equity, bankruptcy could cost Sam the excess over $9,950, while a debt agreement would let Sam keep it.
- If Sam's surplus were only $400, a $780 debt agreement would be unaffordable and likely to fail.
Questions to ask an administrator
- What is the total of all payments and every fee, in dollars?
- How much of each payment goes to creditors?
- Is there any fee if the proposal is rejected?
- What happens if I miss a payment or lose my job?
- Are you registered with AFSA, and is the person advising me registered?
Frequently asked questions
Do creditors usually accept less than the full debt?
Creditors vote on what the proposal offers compared with what they might get in a bankruptcy. Many debt agreements pay creditors less than the full debt, but acceptance is not guaranteed.
Can the payment change during the agreement?
Only through a formal variation accepted by creditors. If your income falls, ask the administrator about a variation early rather than falling into arrears.
Is the administrator's fee capped?
Administrators' remuneration must be disclosed and form part of the proposal creditors vote on. Compare total costs between providers and with free counselling before choosing.
Sources
- Australian Financial Security Authority — debt agreements, registered administrators, fees
- National Debt Helpline — free alternatives and advice
- Moneysmart — debt agreements and debt management firms
- ASIC — professional registers for credit licence checks
