Debt Settlement
Pro Rata Plan
Pro rata plan summary:
A pro rata plan could help you pay off debts in a proportionate way, by paying different amounts to different creditors based on their fair share.
A pro rata plan could keep creditors satisfied in the short term, even if you can’t pay the full amount of what you owe.
A pro rata plan is generally not used in debt settlement offers, because creditors usually want a cash lump sum before they will forgive your debts.
Pro Rata Plan Definition and Meaning
A pro rata plan could help you pay off debts in a fair, proportionate way, by paying different amounts to different creditors. If you owe multiple creditors, setting up a pro rata plan lets you pay a certain percentage of money to each creditor per month. This way, you can pay down multiple debts at the same time.
Pro rata means in proportion, or according to a share of the whole. With a pro rata plan for paying off debt or making a debt settlement offer, you pay down debts based on each creditor’s percentage share of the entire amount of money that you owe.
If you don’t have enough money to pay off your debt in full, a pro rata plan for paying debts may help you manage your debts in a fair, proportionate way.
Another way of thinking about a pro rata plan for your debts is that it gives each creditor its fair share of your money. If you’re trying to decide how to prioritize debts or you’re trying to settle multiple overdue debts at once, a pro rata plan for debt payment could be a good choice. A pro rata plan could help keep your creditors satisfied without taking away all your cash at once.
Key Features of a Pro Rata Plan
A pro rata plan may not be helpful for all kinds of debts or all debt settlement programs. Some creditors will want a lump sum of money all at once to settle your debts. But here are a few features of a pro rata plan that might be included in paying off debts.
Multiple creditors
A pro rata plan is for when you owe money to multiple creditors. It gives you a framework for paying multiple debts at once, but in different amounts. If you only owe money to one creditor, you can deal with that one creditor and one debt payment—no pro rata plan required.
Fair share payments
A pro rata plan isn’t the same as paying off debts with the snowball method or avalanche method. Instead of focusing most of your money on one debt at a time, a pro rata plan puts your extra money toward multiple debts at once. With a pro rata plan, you pay separate fair share amounts of money toward each creditor, based on the total amount of money that you have available to pay your debts.
Temporary solution
A pro rata plan is typically not the same as a debt settlement. Settling debts and getting a creditor to agree to stop collecting from you will often require a larger lump sum of money. But a pro rata plan could be a temporary, stopgap solution for your overdue debts. Using a pro rata plan may be a way for you to buy time while paying multiple creditors at once, even if you’re not paying enough to resolve the entire debt.
Real-Life Example: Pro Rata Plan
Let’s say you owe a total of $10,000 to three different creditors and are overdue on your bills. Here are the balances for the three creditors and the percentage each one represents as a total of what you owe:
Creditor | Balance | Portion of total debt |
A | $5,000 | 50% |
B | $3,000 | 30% |
C | $2,000 | 20% |
TOTAL | $10,000 | 100% |
Now let’s say you tighten your monthly budget, and you find a total of $500 per month you can afford to put toward paying your debts. With a pro rata plan, you pay a proportional share of that $500 toward each of your three creditors. That means you’d pay:
Creditor | Portion of payment | Monthly payment |
A | 50% | $250 |
B | 30% | $150 |
C | 20% | $100 |
TOTAL | 100% | $500 |
Ask your creditors if they’ll accept a pro rata plan to avoid collections or a lawsuit. A pro rata plan could help keep your creditors from taking more serious actions against you. Meanwhile, you’ve bought some time to boost your income, recover from a financial setback, or find other solutions for debt relief or debt settlement.
Pro Rata Plan FAQs
What are my options if debt settlement doesn’t work?
If you’re unable to negotiate a settlement, you may be able to set up a payment plan. You could also consider other debt relief methods, like credit counseling, debt consolidation, or a debt management plan. Filing for bankruptcy could be an option for overwhelming debt.
What are 5 ways to pay down credit card debt?
The avalanche method that prioritizes paying off the debts with the highest interest rates first.
The snowball method that prioritizes paying off the smallest balance first.
A debt management plan, which takes three to five years and pays off all your debts in full.
A debt consolidation loan, which uses one loan to pay off multiple smaller debts.
Debt resolution, where your creditors agree to accept less than the full amount owed.
How do you pay off debt in collections?
There are different strategies for dealing with debt in collections, and the right one depends on a few factors:
Do you owe the money?
How old is the debt?
Who owns the debt? The original creditor, a debt buyer, or a debt collector?
Assuming that you do owe the money and want to pay the collection, you may be able to settle the account for less than you owe. Or you may offer to pay more if the collector agrees to delete the collection from your credit history.
How to pay off debt in collections with a debt buyer? Note that debt buyers may have purchased your account for pennies on the dollar and be willing to settle for much less than your balance. Collection departments from your bank or credit card issuer may be much less likely to negotiate.
Understand that debt buyers often pay pennies on the dollar and are often willing to settle for a small percentage of the original amount due. Another factor is the age of the account and how soon the debt will become uncollectible—every state has a statute of limitations for debt, and once that period has passed, creditors cannot continue to pursue you for payment.
The toughest collectors to deal with are likely to be original creditors. If your bank’s collection department is calling, the chance of them agreeing to accept much less than the full amount is lower.
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