What to do When You Can’t Pay the Bills

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Perhaps your company has downsized, or your adjustable rate mortgage just adjusted. You’ve run out of money, but the bills keep coming.What can you do when you can’t pay the bills? It’s time to stop, take a deep breath and deal with it. The key is to be as proactive as you possibly can before bad quickly goes to worse.

Remember, being unable to pay your debts does not make you a bad person; but it does create some practical challenges. Most problems have a solution. This one does, too.

Assess the Situation

If you are unable to pay your bills, the first thing that you have to do is thoroughly and honestly asses the situation.

Sometimes it may seem easier just to ignore the problems at hand, but this will only make it much worse in the long run.
Use the following guideline to get you on track:

  • Gather your bills and make a list of every expense and obligation you have, their amounts and their due dates.
  • Note whether the bill is currently in good standing or overdue. Alongside, record the account number, phone number, websit,e and contact name or department.
  • Prioritize your bills by importance. Rent or mortgage usually should come first, followed by car payment, insurances, heat, and utilities. Add non-covered but essential medical expenses, credit card accounts, food and lunches, gas and car maintenance, school loans, entertainment and club dues, in that order.
  • Using your first list as a guide, make a second list. This one should be ordered by due date, putting all overdue items on top, followed by bills due next. Use your priority list to help you create a tentative order.
  • You are now ready to start contacting creditors.

Take a Proactive Stance by Cutting Expenses

Remember that this is temporary, and that this too shall pass. Nevertheless, you have to take steps to keep your head above water and prevent your temporary inability to pay your bills from leaving a permanent bump in your credit score.

  • Meet with family members. Explain the situation in non-scary but in real terms.
  • Brainstorm ways to cut down on non-essential expenses. Perhaps membership at the gym could be temporarily suspended. Can the trip you were planning to take during spring break be postponed?
  • The small expenses have to be heavily scrutinized as well. Although it may not seem like it at the time, ordering out for lunch each day can add up, as can regular trips to the coffee shop.

Decide to cut corners where you can. Chances are you’ll come up with at least a few hundred dollars of savings each month.

Contact Your Creditors

When you can’t pay your bills by the due date, you need to communicate that fact before the payment is late. Some companies are willing to skip a payment once a year if you have been a good customer. Others may be able to move a due date to accommodate a change in circumstances. Another option is to negotiate a lower payment on a temporary basis, or to pay “interest only” for one or more months.

Remember, communication and diligence is what is going to get you out of this.
Here are some other ideas on dealing with overdue bills and creditors:

  • Look over your credit card accounts. If your payment record has been good, you may be able to consolidate higher interest accounts into one lower interest account.
  • Ask to speak to a supervisor when contacting a customer service department. Explain the temporary, but urgent nature of your situation. If the problem is due to a layoff or temporary disability, try to give them a date when you will return to work. Tell them what you can afford until then. Utility companies are sometimes willing to wait if they know money is coming by a set date.
  • Call early and be upbeat. If you have managed to make an agreement with the creditor, ask them for a copy of the terms in writing. Record all calls, the content, date and time, and contact name. Keep all papers, bills and related materials together.
  • Keep your agreements, if humanly possible. If you find you cannot, call as soon as you suspect there will be a delay.
  • Ask about restructuring your mortgage. This can result in a lower payment, or in tacking a missed payment on to the end of the loan.
  • School loans can be deferred during times of hardship. Call promptly to see if this option is available to you.

Remember that companies do not want to repossess your property or belongings. They would rather work out a deal with you than go through the legal hassle of collecting an unpaid debt.

Consolidate Where You Can

If you are unable to pay your bills, consolidation may be an option.

Refinancing your home or car may give you a lower interest rate and corresponding lower payment.

Be sure to seek this as a solution before your credit has any serious marks on it. You can read our artilce, “Debt Consolidation” for more information

Consider Credit Counseling

Consumer credit counseling offered by non-profit, government sanctioned agencies, can help you get through a tough period. They can assist you in creating a plan for handling your finances, paying bills, and even act as a go-between with creditors. Help is also offered in stopping creditors from contacting you at home or work until a plan has been created to deal with your debts.

Some argue that working with a consumer credit counseling agency puts a dent in your credit report, but so does a string of late or unpaid bills. With credit counseling, you will receive the advice of an expert and eventually be back on track.

Be careful to deal with a reputable agency. More information on non-profit consumer credit counseling, including where to find a counselor near you, can be found at the National Foundation for Credit Counseling website.

Bankruptcy Only as a Last Resort

Bankruptcy law has changed in recent years, making it a far less desirable option. In most cases, unless your debt is so overwhelming that you could never pay it, bankruptcy provides only a temporary solution, as courts now require the greater part of most debts be paid back eventually. Additionally, bankruptcy stays on your credit report for 10 years.

If you still feel this is the best solution for dealing with your debt, seek the advice of a good bankruptcy attorney. Under the Wage Earners Plan of Chapter 13, you can keep your house, car, and belongings, and pay your debts according to a plan created with your attorney and approved by a judge. Creditors are not allowed to contact you during this process, and must abide by the decision of the court.

Some Final Thoughts and Resources

You may be able to generate income through some of the following methods:

  • Family and friends may have funds they are willing to gift or lend. Asking doesn’t hurt if you are not attached to a positive response. If borrowing, make your repayment agreement realistic and put it in legal terms.
  • Check out the Home Energy Assistance Program (HEAP) for home heating expenses. Allotments and eligibility vary by state, but income limits are fairly generous. You can find more information on this at CitizensEnergy.
  • Consider applying for food stamps and other temporary benefits. The U.S. Department of Agriculture’s website can assist you further.
  • Google for sites on the web that offer help with bills. Visit FindHelptoPayBills, a small directory of helpful sites. Churches and volunteer organizations are also possible sources of help.
  • This website offers plenty of advice on ways to make money from home and through the internet.
  • Reach out to others. If you are out of work, use some of your time volunteering, or start a blog to encourage and uplift those in the same boat as you.

Remember you are not alone. As Helen Keller said, “Although the world is full of suffering, it is also full of overcoming it.”
You may also want to read “Steps to Maintaining a Positive Attitude.”

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