A payment plan is a plan for repaying an outstanding debt. These are used in many different ways. Auto loans and home mortgages usually come with a payment plan that is agreed upon — the borrower pays X amount per month in order to repay the loan. Some payment plans are more flexible, such as those with credit cards, and amounts paid may be based on fluctuating amounts owed.
The payment plan doesn’t always have to be to pay money owed. In certain instances, people will make prepayments on something they wish to purchase prior to receiving it. This type of plan can be common when paying for things like medical or dental care of certain kinds.
For instance, if a person wants to get cosmetic surgery, they may need to pay in advance for a procedure. If that money can’t be produced immediately, a doctor’s office could set up a pre-pay plan, in which the person takes several months in advance of the surgery to pay for it. Another payment plan that bears similarity to this is a layaway program. Prior to receiving an item, the person pays for it over a set period of time, and that item is held for the person during this time.
Under some circumstances, payment plans may be initiated by the person who owes money instead of by the lender. Someone who can’t fully pay their taxes owed might suggest an acceptable amount they will pay to the tax agency per month. If a person has incurred debt with a hospital that is too much to pay at once, they might suggest an amount per month they can pay. This may help stop collections on debts owed, provided the person sticks to the terms they have set for the plan.
One use of the term payment plan is common among credit counseling services. These agencies may be able to work with creditors to reduce debt and they can create a repayment schedule that is acceptable to each creditor. This can be particularly helpful for those people with lots of debts and need to find a way to pay them all, but lack the power to negotiate with each debtor for things like reduced interest or lower monthly payments.
Another way in which people may utilize a payment plan is when they make ongoing payments to things like insurance companies or to utility companies. They can set up automatic monthly withdrawals from bank accounts as part of a plan to remain current on new monies charged. For people who forget to pay their bills often, these structured withdrawals may pose an ideal solution, provided enough money is in the account to fulfill the terms of the plan.