How to Write a Contract for a Debt Pay Off
- 1). Write out your name and contact information, flush left, at the top of the page.
- 2). Write out the name of the person to whom you are lending, along with her contact information, flush left.
- 3). Write "Contract for Debt Repayment" without quotes, centered.
- 4). Write a sentence or paragraph in which you define yourself as the Lender and the person to whom you are lending as the Borrower. Use these terms throughout the rest of the contract. In this same paragraph, write out the amount you have lent and that both parties acknowledge this is the true amount of the debt owed. Include the date on which you are lending the money.
- 5). Indicate the terms of interest, such as, "Borrower agrees to pay interest at a rate of six percent on the unpaid balance of the loan." Keep in mind that you may opt to forgo interest charges for a specified period and that you may include a clause in which interest will increase in the instance of repeated missed payments.
- 6). Write out a paragraph or sentence that explains when a full or partial payment will be due. For example, write, "The Borrower agrees to pay [sum] on the first of the month until the debt is paid in its entirety." If you plan to have a grace period, explain how many days the borrower will have before penalties are applied. Specify the exact amount you will charge in penalties, and explain the methods of payment. If you are accepting checks, include a penalty for insufficient funds.
- 7). Indicate the date when the entire loan is to be paid off in full; if the contract allows for partial payments, simply divide the total amount of the loan by the number of payment periods (e.g., months) to calculate how long it will take the borrower to repay you. Specify that you are entitled to demand any unpaid balance on the loan on that date, including any outstanding penalties.
- 8). Specify that, as the loan contract is a legal agreement, you can and will pursue legal action to collect the debt if the borrower fails to meet his obligations. Clarify that the borrower, not you, will be responsible for any expenses incurred as a result of trying to collect the debt.
- 9). Create lines for both you and the borrower to sign the contract, as well as a line to indicate the date on which the contract was signed.