What Is a Payment Agreement?

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  • Written By: Sara Schmidt
  • Edited By: Andrew Jones
  • Last Modified Date: 02 February 2020
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When a debt balance due exceeds the amount of money a person can afford to pay, he or she can often set up a payment agreement with a business or attorney. This agreement usually differs on a case by case basis, and allows people to pay smaller amounts on a regular basis until the full amount due is paid. Installment fees, interest, and other additional monies may be added to the payment agreement.

Also known as an installment agreement, a payment agreement usually begins when one party contacts the other. Usually this involves a business or debt collector calling or sending mail to the person owing the debt. If multiple attempts to collect the debt have been executed without any success, a law firm representing the business may take over the debt and attempt to collect the payment. If the person owing the debt makes the case that he or she cannot afford to pay promptly, negotiations for this kind of agreement may commence.

A payment agreement usually goes into effect immediately, with the first payment due within thirty days after the agreement is made. Payments may be very small, large, or divided equally, depending upon the conditions of the agreement and the amount of the bill. The duration for the agreement also varies on a case by case base. Though many collectors may wish to settle the debt within one year, if the debt is large, a longer agreement may be issued.


Verbal agreements usually suffice to set up a payment agreement. Some debt collectors, however, may wish to issue a payment agreement form for the debtor to fill out and return. Most debtors who agree to the terms will receive a payment agreement letter in the mail once the agreement is made. A letter that confirms the debt has been paid should also be sent following the conclusion of the agreement. Debtors may wish to ask for this letter as part of their agreement to pay.

Violating a payment agreement may be regarded as the termination of a contract. If the debtor fails to make a payment without notifying the collector, he or she may have his or her agreement revoked, upon which the debt will again be due immediately an in full. Legal action may then be taken against the debtor. Many debt collectors will make further arrangements if a debtor provides them advance notice of an inability to pay, allowing them to make an additional or late payment.


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