In an ideal world, you would pay your bills on time every month and have money left over. And in an ideal world, there would be no interest, no late fees, and no one would ever be stuck with the feeling that they cannot get ahead. But this is not an ideal world. Emergencies happen. Sometimes there are more bills to pay than there is money in the bank account, especially when you’re trying to get out of debt. So what can you do if you can’t pay all your bills? Here are some things to keep in mind in order to help you avoid late fees and meet your financial obligations even during the most difficult months.
What type of debt do you have?
Everything you owe is considered either secured or unsecured debt. Secured is anything linked to collateral – something your lender can take back from you if you default on your payments. The most common types are home mortgages and car loans. Unsecured is any debt that is not linked to collateral – i.e. credit cards. Your unsecured debt usually has higher interest rates since your lender can’t take collateral back if you default. It’s important to understand how much secured and unsecured debt you have, because that indicates what you stand to lose if you default on payments. At that point you can start to think about where you have the most wiggle room.
What is at stake?
If you default on debt, there are many things that can happen. You can get charged late fees, your interest rates can go up, and/or you can lose your collateral. Or, for things like your phone bill and electric bill, your services might even get turned off. So before you do anything else, make a list of each bill you have and what you will lose if you don’t pay on it for one month. That’s not the only factor you’ll need to consider (you’ll see why in the next paragraph), but it’s a great starting point.
Pick up that phone!
Now you have a list. But here’s the kicker – the bills you think you need to prioritize might actually be the most flexible. For example, your first instinct might be to say that you need to pay your mortgage before you worry about the credit cards. You certainly wouldn’t want to lose your home! However, a lot of mortgage companies and banks are more flexible after the mortgage crisis. How would you know if your lender is one of them? Give them a call! If you have a solid history of paying on time then they may help you out. If not, then you certainly didn’t lose a thing by asking.
It may come as a surprise, but credit card companies are also very likely to work with you. There is so much competition for attracting new customers that if you have been a long-term customer who’s paid your bills on time they aren’t going to want to lose you. For that reason, they may be able to waive a single late fee.
What if you have student loans? Fortunately, student loan lenders generally offer a deferral due to economic hardship – which usually lasts for one year. Mortgage companies are also offering this more often now, but be sure to read the fine print! There could be a large payment due at the end of deferment so its important to be careful about your decision to use that option. As far as phone and energy bills go, these services usually won’t get turned off if you are late on one payment. However, it’s better to take the time to call them. Most energy companies will set up payment plans to help you get back on track.
What Not to Do
When you’re in a tough situation, the last thing you want to do is to make choice that will hurt you even more down the road. You may come across options that seem like easy solutions but they usually have hidden pitfalls. One example of a seemingly easy solution that you should avoid altogether is a payday loan. You’ll end up spending much more interest than you borrowed in the first place, which can suck you into an endless cycle of borrowing.
Another thing you’ll want to avoid is opening a new credit card or maxing out a current card to get ahead. This will just put you further into the hole later, and make it harder to get out of debt. And finally, don’t skip paying a bill you can’t afford without first trying to work something out with your lender. It’s easy to get intimidated and assume they won’t help you but don’t let that stop you! Lenders are more willing to help than you can imagine because at the end of the day they would rather you pay your bills late or on a plan than not at all.
How to Make Sure This Doesn’t Become a Habit
So you had a tough month and made some hard decisions. That doesn’t have to derail your whole financial plan! Consciously getting back on track is the only way to avoid falling down the spiral. One way to keep this from becoming a habit is to re-evaluate your budget. What got you into this place to begin with? Was it an unexpected emergency or slip-up or was it a slow buildup that occurred over time? It’s easy to get down on yourself when you get behind but the only way to get past that feeling is to learn and move forward. If what happened was a slow buildup, then re-evaluating your budget can get you back on the track you slowly got off of. If it was an emergency then maybe it’s time to think of some creative ways to build up an “oops” fund. Either way, dealing with this without learning from it would be a wasted opportunity that could have been used to make your life easier in the long run.
And remember, it’s never a good idea to not pay a bill, but the reality is that sometimes hard decisions like this have to be made. In the rare instance that occurs, follow these steps and focus on doing the research! A few phone calls to your lenders could prove to save you a lot of money in the end.
Of course, if this is happening all the time, then you should take a closer look at your overall financial picture and identify major changes you can make to get your monthly costs to match your income (which a good financial planner could help you with). If you need help managing your debt accounts and making a plan to get out of debt, try ReadyForZero by signing up below:
This article is part of our Credit Card Debt Resource Center. If you’re looking for additional information about credit card debt, be sure to pay a visit!
Image credit: xJason.Rogersx