If you have fallen behind on a debt the lender might offer you an installment agreement to encourage you to make payments. This is often the case when a debt is turned over to a collection agency – many debtors receive warning notices from collection agencies that offer installment payments as an option for avoiding legal action. There are also instances in which debtors can propose an installment payment schedule as a means by which to pay a large debt.
Are these installment plans really an opportunity to resolve your financial struggles?
For some people, an installment payment plan is exactly what they need to get back on track. Unfortunately, this is not the case for everyone and for some, an installment payment plan is just delaying the inevitable, or might even make the situation worse.
Before you agree to an installment payment plan or you suggest one to your lender, there are a few things you should consider.
Is It Interest-free?
Payment plans can reduce the amount of money you owe each month, but if it is not interest-free, you could end up owing more overall. This means a $1000 credit card debt can balloon into several thousand dollars over time, creating a much worse financial problem than you currently face.
If a payment plan is not interest-free, it is only a good option if your financial struggles are temporary. It could benefit you to pay a bit more in the long run if it means staying current on your monthly payments at the moment. If you aren’t able to pay off the debt in a short period of time, interest will cost you a lot more and you are likely making your situation worse.
The laws regarding deferred interest credit card opportunities changed a few years ago. If you are considering taking on an interest-deferred debt, check out this information from CreditCards.com.
Are Payments Affordable?
A payment plan for a large debt might seem like a great idea, until you realize the installments are just as unaffordable as the entire debt. If you are struggling with finances, dividing a $20,000 debt into “three easy payments” or even six or nine isn’t going to help you all that much.
Before committing to a payment plan, verbally or in writing, make sure you know the exact amount and the exact due dates.
Are the Payments Automatically Deducted?
You might be tempted to set up automatic deductions from your checking account once you agree to an installment payment plan. While this can help keep you organized and maintain on-time payments, it’s usually not the best solution. If possible, keep your direct checking account information private and agree to make payments via check or online payment each month. And then make sure you remember to do so to avoid falling behind.
Financial challenges are one of the most common faced by Americans today. There are many solutions, including installment payments, that can help you get back on track, but not every solution is an option for everyone.
If your finances are overwhelming you and you aren’t sure what to do or whether to agree to offers made by the lender or a collection agency, we can help. To learn more or to schedule a time to discuss your debt, contact the law office of Frank J. LaPerch, PC at 845.942.5500.