Do you find paying debts in large amounts difficult to handle? Well, it becomes difficult when people lack financial stability. When that happens, people usually abandon their responsibility to pay their debts. Thus, causing the rise of consumer debt in the economy. According to The Balance, the US consumer debt rose by 6.3% last December 2019 than the previous record. This further supports that people are experiencing difficulties in handling their debt payments. When it comes to debt payment management, a payment plan should be used so debts can be properly accommodated. In this article, you will learn about a payment plan, why it is important, its benefits, and how to set up the right payment plan for your debts.
A payment plan is a document that contains a procedure where a borrower pays in little amounts of a particular debt or expense on an agreed monthly schedule. When a payment plan is administered, it is most likely that the payment of the debt would be secured because of the placed down attainable amount. However, there is a minor drawback in a payment plan—it adds interest to your debt until it is fully paid off. For example, you have a debt of $3,000, and you chose a payment plan of 2 years with 5% interest. In this arrangement, you will have $3,750 as your total debt.
1. It provides an effective way of meeting payment deadlines.
2. It establishes financial planning and security.
3. It lessens the worry of paying debts in large amounts.
4. It helps maintain the budget of an individual.
A flexible payment plan is applied to immediate loans or when purchasing items that allow a flexible payment plan as a method of payment. This is usually done in monthly installments. However, an individual can select how many installments they want in a month. The more installments they acquire in a month, the faster the they can pay the debt.
A monthly payment plan is usually the type of plan that people would choose because it is done on a monthly basis. This is mainly required for expenses such as car loans, student loans, bank loans, etc. It is an advantage for individuals who have a monthly salary or income because they can immediately pay the debt once they receive their monthly salary or income.
An annual payment plan is when an individual chooses to pay a debt or expense yearly. The advantage of this type of payment plan is that an individual doesn’t have to worry about paying his or her debt on a regular basis. The downside of this plan is that a yearly payment would equate to a huge amount since it is a whole year worth of debt.
A payment plan is a responsibilty that you have to handle seriously. So if you are planning to acquire a payment plan, there are some things that you need to do first so that you can determine if you can handle it. Here are some of them:
It is important that you list down all the bills and expenses that you receive or make in a regular basis. This will help you determine which debt or expense to prioritize in terms of payment, which debt needs your immediate attention, and which ones you can pay later.
You can classify your debts accordingly. It can be according to their date of payment, the amount to be paid, or the value of debt. This is important because it can help you make a budget plan for paying your payment plan. This way, handling your debts would be more manageable because now you have a guide in assessing them.
You have to calculate your monthly budget to determine how much you will need to save for a payment plan. Compute how much you need for your daily expenses, monthly bills, and personal needs. It will help you control on how much you spend on different things so that you can have an extra money for the payment plan.
After assessing the different things that help you determine which payment plan is right for you, choose the payment plan that fits your budget. If you want handle a monthly or a yearly payment plan, then you should go for it since you have assessed the things that determine you can handle a payment plan.
Yes, payment plans can be set up with the IRS. It is free when you set up a revised plan online. A new plan would cost $31 with debit, $149 without debit, and a $10 charge for a revision of a plan without debit.
A deferred payment plan is when a certain debt is paid beyond the scheduled date. This type of plan is arranged when an individual has insufficient funds. A deferred payment plan is usually done in a regular installment schedule to make sure that an individual can cover his or her payments.
Payment plans are arrangements designed to help an individual in managing the payment of their debts. There are a lot of sample templates for a payment plan online, try to take a look and see which payment plan would be perfect for you. The information in this article will guide you in choosing your payment plan. Also, it will help you assess the management of your debts and in classifying them according to importance.