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When a debt collector has contacted you about a past-due debt and you are unable to pay the entire amount, or settle the account for less than the balance in a lump sum payment, you may have another option — a payment plan. A payment plan is not available on every account, but for those accounts that are eligible, a debt collector will work with you so you can repay your debt over a period of time. Payment plans are a great way to get back in good graces with your creditor and shows them that you are diligently working to repay the money that you borrowed, even if the account is past due. Here are some factors that come into play when setting up a payment plan with a debt collector.

Payment Amount

The payment amount is the most important element when setting up a successful payment plan with a debt collector. At the same time, it generally can be one of the more problematic elements — for two reasons, with the same end result. First, the debt collector will try to get the most amount of money in the shortest period of time, which can lead to consumers setting up payment plans they can’t afford. Second, the consumer wants to pay off the debt as soon as possible and ends up agreeing to a payment plan they can’t afford. So the lesson learned here is to only set up a payment plan that you can afford and be certain you can keep. Payment plans are generally flexible and up to the discretion of the debt collector, so it is important to understand your budget and what amount you can comfortably afford to pay each month.

Repayment Period

The second most important element of a setting up a successful payment plan with a debt collector is the payment plan’s amount of time. This is critical because you don’t want to extend the amount of time any longer than you have to, while at the same time you don’t want to overextend yourself and not be able to keep up with it. For debts with smaller balances, it is best to try and keep those repayment plans under six to 12 months. For debts with larger balances, it is best to set up short-term repayment plans such as six to 12 months with scheduled followup with the debt collector to reevaluate your financial situation and consider increasing the payment amount. Most creditors require debt collectors to follow up with consumers every three to six months to try and increase the amount in order to get the balance resolved as quickly as possible.

Method of Payment

Debt collectors generally have two methods of electronic automated payments — through an ACH debit or debit card.

However, debt collectors tend to favor electronic automated payments, as many have found that the most effective, efficient and best chance to keep the payment plan going. So this is why a debt collector may encourage you to set an automated payment plan.

Other payment methods, such as mailing in payments or wiring payments through a company like Western Union or MoneyGram may also be accepted, though they may not be encouraged. (Here is a guide to the dos and don’ts of paying a debt collector.)

Payment plans play a vital role in the debt collection process and setting up the right payment plans through the right methods can help both the consumer and debt collector resolve the debt in the most efficient way possible. So when you have a debt in collections and are unable to pay or settle in full the account, remember these three important factors when negotiating your payment plan.

As you pay off your debt, it can be helpful to keep an eye on your credit reports and credit scores to be informed on where you stand — also to look for signs of fraud or any errors that need correcting. You can get your credit reports for free once a year from each of the major credit reporting agencies through AnnualCreditReport.com, and you can get your credit scores for free from many sources, including Credit.com, which updates two of your free credit scores monthly.

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