Monthly Installments and Debt

Paying for items by monthly installments is a relatively common scenario in the modern age.

In fact a lot of the payments people will have to make will not be one off events but will be compiled of regular amounts that are paid to the recipient over a defined length of time.

Credit card payments, mortgages and rent payments are the most common form of these kinds of structured payments.

The problem is that it can be very easy to fall behind and end up in debt.

What does ‘arrears’ mean?

The term ‘arrears’ essentially refers to money that is owed because of a missed payment. This could be one missed payment, a portion of a payment or a whole series of unpaid instalments of a person’s rent, credit card payments or child support.

So ‘arrears’ is a legal term for outstanding debt. The amount of the arrears is the amount accumulated from the date on which the first unpaid payment was due to be paid.

What does ‘in arrears’ mean?

There can be some confusion over what the term in arrears means because it is used in a number of different contexts which have vaguely similar meanings.

The term is used to describe payments made at the end of a period. This makes the term in arrears the opposite of payments that are made in advance.

An example of this is the fact that a person’s wages are usually paid in arrears (a person is paid for the work they have already completed) whereas a payment for a good is usually in advance (a person must pay for their teabags before they can use those teabags to make a cup of tea).

The legal terminology of in arrears is slightly different. A person is said to be in arrears when they have fallen behind in their payments and therefore have accumulated some debt or other liabilities.

If a person has not paid their rent in three months they are said to be three months in arrears. The term can also be applied to the person in questions account, for example in the above example of a person who owes their landlord three months rent the persons account could be said to be in arrears as well as the person.

The term also has different meanings within the specific contexts of accounting and finance.