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A payment plan agreement is established between a debtor and a creditor, binding the debtor to repay the owed amount under specific terms. Payment plans are commonly used for expensive goods or services, allowing the buyer to spread the cost over time, which alleviates the immediate financial burden. This arrangement is beneficial for sellers as it can increase their total earnings through interest charges. Buyers often opt for payment plans when they need items urgently, making it a practical solution. The tutorial also highlights popular items and services that use payment plans and where to find a free agreement template.