Que the highest frustration level available. It can feel impossible to catch up on paying bills after falling behind. I remember times walking to the mailbox and dreading what was waiting. Instead of cute magazines there were envelopes marked with demoralizing words like, past due and termination notice. But payment delays happen and especially this year — have you been hit with an unexpected career change, family emergency, job loss or furlough? Suddenly your income simply isn’t enough to meet what you owe in housing, utility, debt and other payments each month.
Falling behind on your financial obligations isn’t the end of the world, as I used to think it was. Yes, it can cause long-lasting financial challenges if you’re not careful to catch up as soon as you can, but it’s not impossible.
If you’re feeling overwhelmed with unpaid bills, never-ending interest, late fees and more, here are some of my steps to help you start moving in a positive direction.
1. Make a list of bills missed and those coming due soon
The first step after falling behind is to begin keeping careful track of which payments you’re delaying, when each are due and whether or not you’ll owe additional money (late fees) for missing them. Getting organized will let you see exactly how much you owe so you can start making decisions on how to allocate your money and whether delaying additional payments (and which payment) is the right move.
2. Prioritize current and missed payments
After you have a list of everything you owe, place them in order by importance. This will help you focus your repayment efforts on the bills you feel are most important or carry the highest costs (i.e. interest rates or fees). You want to be aware of any missed payments that could lead to significant legal or financial trouble. We want to avoid collection calls!
From my earlier post I talk about covering your 4 walls. These are your most important bills. They allow you to keep a roof over your family’s head, so be sure your rent or mortgage payments are at the top of your list. Follow it with your food and utilities bills. If you cannot afford your mortgage or rent, speaking with a HUD-approved counselor may help; similarly, if you cannot afford to buy food, we recommend starting with our local church and city food banks to find distribution sites. After these necessities, prioritize any work-related expenses, such as car payments or phone bills, and then focus on loans and other debts as the last.
3. Talk to your creditors
Once you know which bills you’re not able to pay, calling your creditors is a great next step. If you communicate with your creditors about your current financial struggles, they are more flexible with repayment plans, including changing terms or possibly even penalties. Calling Visa or your mortgage company first is huge and most all the companies are doing things such as waiving late fees or lowering interest rates temporarily. If you need to call ask them, “what options are your providing others with the same challenges as I’m having now”? You don’t need to give them a full blown list, keep it factual and professional. Something like, “I was laid off at work on (insert date) and currently job searching. My income has been greatly reduced, I want to stay current as much as possible and need to know my options”.
Even if you can’t pay your bills, pretending they don’t exist isn’t your best strategy. Ignoring your bills can lead to penalties or higher interest rates and possibly damage your credit standing.
4. Make a budget and track your spending moving forward
I know……I said the dreaded “B” word again, but I promise you it really does work. Once you know how much you owe, it’s time to track how much you’re earning and review your monthly budget. Knowing how much cash is coming into your household and when the cash will hit your bank account will help you stay on track with your payment plans and allow you to catch up on some of your unpaid bills.
You can start your budget by creating two lists — one with your sources of income and one with your expenses. Sort them by fixed costs (rent, insurance or car payments) and variable ones (the amount changes each week or month) such as groceries or entertainment.
After you learn how to make a budget, you’ll want to track your spending to help you stick to it. This allows you to identify your spending patterns and see areas where you may be overspending.
5. Be wary of debt relief services
This is a rabbit hole that can be tempting if you’re in a financial bind. They often claim they can renegotiate or change the terms of your debt. While it can be a lot of work to do this on your own in my opinion it’s better for you. No one knows exactly your situation better than you or as your Financial Coach this is an area I can walk through with you. In the long term it’s possible you’ll pay more than the original debt while the credit score takes a bigger hit.
Falling behind on your bills is undeniably stressful, but with some organization, budgeting, and careful spending, you can have a better understanding of your financial situation. It will allow you to make a plan to catch-up with your bills and gain more control over your financial future.
Do you need help or have questions about setting up the budget? Click the YouTube video I did earlier this year entitlted, “Budgeting When You’ve Been Laid-Off”. It walks you step by step. As always, if you have questions or comments please let me know!
Have a wonderful weekend everyone!