Negotiating Extended Payment Plans With Creditors Instead of Debt Relief

Falling behind on debt payments can be stressful and overwhelming. Many consumers in this situation consider turning to debt relief options like debt settlement or bankruptcy. However, negotiating an extended payment plan directly with creditors can provide an alternative path without the drawbacks of formal debt relief programs.

How Extended Payment Plans Work

An extended payment plan allows you to repay debt over a longer period of time, often 12-48 months. This reduces your monthly payment to a more affordable amount based on your budget. Creditors may also agree to waive late fees, reduce interest rates, or make other concessions as part of the agreement.

Extended payment plans are voluntary arrangements negotiated directly between you and the creditor. They do not require working with a third party debt settlement company or filing for bankruptcy. This gives you more control over the process.

To set up an extended payment plan, contact your creditors to explain your financial hardship and inability to make the minimum payments. Be prepared to provide documentation of income, expenses, and debts. Creditors want assurance you can maintain the new payment schedule.

If approved, get the details in writing before making payments under the new terms. This written agreement is vital to enforce the modified payment schedule.

Benefits Over Debt Settlement and Bankruptcy

Extended payment plans allow you to repay debt under more affordable terms without the risks and consequences of formal debt relief strategies.

Avoid High Fees

Debt settlement companies charge hefty fees, often a percentage of your total debt. This cuts into the savings from negotiated settlements. Bankruptcy attorney fees can also be thousands of dollars.

Extended payment plans let you work directly with creditors. This avoids expensive third party fees.

Prevent Credit Damage

Debt settlement and bankruptcy negatively impact your credit. These options show up on your credit reports and can lower your scores by 100 points or more.

An extended payment plan enables you to repay debt while keeping accounts in good standing. Making consistent monthly payments can also help rebuild credit over time.

Retain Property

Bankruptcy forces you to liquidate certain assets to repay debts. Non-exempt property like second homes, valuable collections, and luxury vehicles may be seized and sold.

Extended payment plans allow you to keep all property while repaying debt over time. There is no liquidation requirement.

Avoid Lawsuits

Creditors can still sue for repayment after debt settlement negotiations. They may get court ordered judgments to garnish wages or put liens on property.

Entering into a voluntary extended payment agreement puts collections activity on hold. Lawsuits are no longer necessary if you stick to the new payment schedule.

Drawbacks to Consider

While beneficial in many ways, extended payment plans do come with some potential disadvantages.

Requires Lump Sum Payoff

Creditors may require a lump sum payoff of a portion of the balance to approve a payment plan. For example, you may need to pay 25% upfront with the remaining balance stretched over 12-24 months. This can be difficult to come up with if finances are already tight.

Less Debt Forgiveness

Debt settlement companies negotiate for a reduced lump sum payoff, often 40-60% less than the total balance. Creditors are less likely to agree to significant debt forgiveness through a direct payment plan.

Interest Continues Accruing

Unless your creditor agrees to waive or reduce interest as part of the agreement, you will continue being charged interest on the unpaid balance each month. This increases the total repayment amount.

Requires Ongoing Financial Discipline

An extended plan only provides relief if you consistently make the agreed upon monthly payments. Missing payments puts you in default of the agreement and exposes you to collections activity again.

Tips for Negotiating a Payment Plan

If you decide to pursue an extended payment plan, use these negotiation strategies to secure the best possible terms:

• Highlight extenuating circumstances – Explain how unexpected events like job loss, medical bills, or divorce impacted your finances. Creditors are more likely to work with “hardship” cases.
• Propose realistic payment terms – Offer a monthly payment amount you can reliably afford based on a detailed budget analysis. Don’t commit to overly ambitious payments you can’t sustain.
• Offer a lump sum – Proposing to pay 10-25% of the balance upfront shows good faith and can incentivize creditors to agree to a payment plan.
• Ask for interest rate reductions – Try to negotiate a lower interest rate or complete waiver of future interest. This reduces the total repayment amount.
• Request removal of late fees – Ask creditors to waive any late fees that were assessed on the account to avoid penalization.
• Get it in writing – Verbal agreements mean nothing. Be sure to get the finalized payment plan terms in writing before sending any payments.
• Consider credit counseling assistance – Reputable credit counseling agencies can help negotiate with creditors on your behalf. Fees are usually low if you need extra help.

When Payment Plans Are Not Feasible

In certain situations, extended repayment plans may not be workable or the best course of action:

• Creditors refuse reasonable payment proposals – Without willingness to compromise, a mutually agreeable deal may not be possible.
• Lawsuits have already been filed – If creditors have an active lawsuit, they may insist on settlement or full payment right away.
• Debt load is severely unaffordable – If monthly income is far exceeded by debt payments, even reduced payments may remain out of reach.
• Prior default on payment plans – Creditors will be reluctant to trust consumers who previously defaulted on agreements.
• Fast resolution is needed – Payment plans take years to fully repay. Other options like debt settlement resolve debt much quicker.

If you exhaust efforts to negotiate extended terms but reach an impasse, debt settlement or bankruptcy may be the most practical choices to deal with unaffordable debt.

Alternatives Beyond DIY Payment Plans

Negotiating directly with creditors has advantages but also requires time and skill in working out agreements. If you need assistance, consider:

• Credit counseling agencies – Reputable non-profit agencies can negotiate on your behalf for free or very low cost.
• Debt management plans – Credit counseling agencies can arrange DMPs that consolidate debt into one lower monthly payment.
• Debt settlement companies – Settlement firms negotiate lump sum payoffs with creditors for a fee based on savings.
• Bankruptcy attorneys – Filing Chapter 7 or Chapter 13 bankruptcy fully discharges many debts under court protection.
• Debt consolidation loans – Banks or credit unions may extend a personal loan to repay debts at lower interest rates.

Each option has pros and cons to weigh based on your specific debt situation and financial goals.

The Bottom Line

An extended payment plan can serve as a middle ground between struggling to pay debt as-is and pursuing formal debt relief. Negotiating directly with creditors retains control and avoids drawbacks like fees and credit damage.

However, payment plans work best for certain debt scenarios. Other options like debt settlement or bankruptcy may be better suited if creditors refuse reasonable terms or the debt amount is severely unaffordable. Analyze your circumstances carefully and consult with a financial advisor if needed to decide the best path.

With persistence and good financial planning, an extended payment plan can provide the debt relief you need without derailing your credit standing or budget in the long run. But be realistic about what you can commit to and get any agreements formalized in writing. Ongoing dedication to the new payment schedule is essential for this strategy to succeed.