What is a payment plan? 

For those struggling to pay back their debts, a payment plan can ease the strain of making high-interest debt repayments. Instead, creditors allow debtors to pay back debt at their own pace, with reduced monthly repayments. 

In this article, we’ll cover everything you need to know about entering into a payment plan, from the benefits to what to do to prepare for the application process. 

Let’s get to the following commonly asked questions:

• What is a payment plan?
• What is the benefit of a payment plan?
• What is an ATO payment plan?
• Who can enter into a payment plan?
• What to do before setting up a payment plan 

Q1. What is a payment plan?

A payment plan is a financial assistance agreement between a debtor and a creditor to pay off any debt through direct debit payments over an agreed length of time. A payment arrangement can be used for most debts, including credit card bills, utilities, and car loans.

Not all creditors are required to offer a payment plan to their customers. Some specify a minimum payment amount or charge interest on the payment plan instalments. 

Despite this, payment plans are a practical debt relief option for those that face difficulty paying their bills, helping them to avoid late fees and penalties. 

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Q2. What is the benefit of a payment plan?

The benefit of a payment plan is that it allows a debtor to pay off a debt in manageable instalments over a while rather than having to pay the total amount all at once. This can be especially helpful for people experiencing financial difficulties or who cannot afford to make a lump-sum payment.

Here are some specific benefits of using a payment plan:

1. Budgeting: A regular payment schedule allows debtors to manage payments better, as they know exactly how much they need to pay and when they need to pay it.

2. Less financial stress: By breaking the debt into manageable payments, payment plans can help reduce the financial stress of having outstanding debts or missing due dates. 

3. Avoid late fees and penalties: Payment plans help debtors avoid late payment fees and penalties that may be charged for not paying overdue amounts. 

4. Maintain your credit score: Payment plans help to maintain a debtor's credit score by ensuring they make regular, on-time payments towards their existing debt.

5. Negotiating power: Payment plans may give debtors negotiating power with creditors, who may be more willing to accept a payment plan application than risk not being repaid.

Q3. What is an ATO payment plan?

An Australian Taxation Office (ATO) payment plan is an arrangement for taxpayers who cannot pay their income tax debts by the specified due date. It allows them to make payments directly via myGov over some time rather than in one lump sum. 

If you’re struggling with paying your tax bill on time, discuss your options with an ATO advisor as soon as possible to avoid fees. Submit your application and apply online here. If you’re struggling to keep up with your existing payment plan, you can change the terms of your plan at any time. 

Q4. Who can enter into a payment plan?

If you’re struggling to pay your outstanding debt, many creditors offer payment plans to help you avoid making an unaffordable upfront payment. 

Payment options vary, and it is possible to negotiate a plan that best suits your financial situation. Typically, it will involve setting up a direct debit and paying your monthly bill from your bank account.

You can pay in instalments with the following creditors: 

1. Utility providers may provide payment plans for debtors who cannot pay their electricity, gas, and water bills to customers struggling to pay them.

2. Credit card companies offer payment plans to customers who cannot pay their credit card debt when it’s time to pay. 

3. Medical providers provide payment plans to patients who cannot pay their medical bills instantly or who don’t have private health insurance. 

4. Australian Taxation Office (ATO) offers payment plans to individuals and businesses who can only partially pay their tax debt by the due date. Consult with a tax agent for guidance about paying your bill.

Q5. What to do before setting up a payment plan?

Before applying for a payment plan, debtors should take the necessary steps to prepare, including:

1. Evaluating your budget: Look closely at your income and expenses to determine how much you can realistically afford to pay monthly towards the debt.

2. Negotiating with creditors: Consider negotiating with creditors to see if they are willing to reduce your debt or waive fees or penalties before entering into a payment plan. 

3. Understanding the payment plan terms: Ensure you understand the terms and conditions of the payment plan before agreeing to it. 

4. Seeking professional advice: If you are still deciding the best course of action for managing your debt, consider seeking advice from a financial advisor or credit counsellor. 

Before setting up a payment plan to pay your fine, fee, activity statements or tax returns in Australia, it is essential to review your financial situation, assess your ability to make regular payments and negotiate a payment schedule that you can realistically stick to avoid additional penalties or fees.

Summing up

Struggling to pay off debts can be stressful, especially if you’re saddled with high-interest rates and fees. Luckily, many creditors offer debtors the option of entering into a payment plan to ease the strain of paying off high debts. 

By using your financial information, they will devise terms that make it easier for you to pay off what you owe. If you liked this article, stay updated with our blog, where we regularly publish financial advice. 

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‍Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not consider your investment objectives, particular needs, or financial situation.