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Payment plans are used to repay debts, such as auto and home loans, and can be flexible, like credit cards. They can also be used for prepayments on items like medical care or layaway programs. Payment plans can be initiated by the person owing money and can be helpful for reducing debt through credit counseling services or automatic withdrawals for ongoing payments.
A payment plan is a plan for repaying an outstanding debt. These are used in many different ways. Auto loans and home loans usually come with an agreed payment plan – the borrower pays X amount per month to repay the loan. Some payment plans are more flexible, such as those with credit cards, and the amounts paid can be based on fluctuating amounts due.
The payment plan doesn’t always have to be to pay the money owed. In some cases, people will make prepayments on something they want to buy before receiving it. This type of plan can be common when paying for things like medical or dental care of certain types.
For example, if a person wants to have cosmetic surgery, they may need to pay up front for a procedure. If that money can’t be produced right away, a doctor’s office might set up an upfront payment plan, in which the person takes several months before surgery to pay for it. Another payment plan that bears similarity to this is a layaway program. Before receiving an item, the person pays for it for a set amount of time, and that item is kept for the person during this time.
In some circumstances, payment plans can be initiated by the person owing money instead of the lender. Someone who is unable to pay their due taxes in full could suggest an acceptable amount they will pay the tax agency per month. If a person has a debt to a hospital that is too much to pay at one time, he could suggest an amount per month that he can pay. This can help stop collections on debts owed, provided the person sticks to the terms set out in the plan.
One use of the term payment plan is common among credit counseling services. These agencies may be able to work with your creditors to reduce your debt and can create a repayment plan that is acceptable to each creditor. This can be especially helpful for those people who have a lot of debt and need to find a way to pay it all off, but don’t have the power to negotiate with each debtor for things like reduced interest or lower monthly payments.
Another way people can use a payment plan is when they make ongoing payments to things like insurance companies or utility companies. They can set up automatic monthly withdrawals from bank accounts as part of a plan to stay up to date on new debit amounts. For people who forget to pay their bills often, these structured withdrawals can be an ideal solution, provided there are sufficient funds in the account to meet the terms of the plan.
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