Falling behind on paying your bills is one of the more stressful situations anyone can find themselves in — and it’s a circumstance many consumers can relate to.
According to a study released in March 2023 from PYMNTS.com and LendingClub, 62% of Americans are living paycheck to paycheck. If that’s you, and you’re struggling to pay bills, fortunately there is plenty you can do to stop the financial bleeding. But it will take some time and attention.
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What to Do If You Fall Behind on Bills
If you fall behind on bills, the most important thing to do is to stay in touch with your creditors and let them know when you will be making a payment.
“The primary goal of the company you owe is to get their money. They want to keep you paying in some form or fashion,” says Lamar Brabham, CEO and founder of Noel Taylor Agency, a financial planning firm in North Myrtle Beach, South Carolina.
“The last thing they want is to write off your account as uncollectable. If you approach the situation in a business-like manner and sincerely ask for help in formulating a plan to repay the debt, you have a much better chance of weathering the financial storm,” he adds.
Here are some steps to take if you’re falling behind on your bills:
1. Make a list of all your bills.
2. Figure out your cash flow.
3. Prioritize your bills.
4. Start contacting creditors.
5. Aim to pay only one or a couple of bills late.
6. Consider other income sources.
7. Avoid going into more debt.
1. Make a List of All Your Bills
Holley Cary, a certified financial planner and vice president at First Horizon Advisors, suggests making list of all your bills, both those that are late and on time, “along with dates of payments due, interest rates and balance details.”
2. Figure Out Your Cash Flow
Find out exactly how much money you have coming in each month. “Set priorities based on cash flow,” Cary says. “You will want to cut back any discretionary spending until overdue bills are caught up.”
3. Prioritize Your Bills
Lisa Whitley, an accredited financial counselor and chartered retirement planning counselor who lives in the District of Columbia, points out that not all bills are equally important. For example, a streaming service is never going to be as important to pay off as your mortgage.
And even when you get to other bills like a credit card, which is certainly important to pay on time, it may not be the most important bill to pay.
“If you are at risk of falling behind on your car payment, then you are at risk of losing your car, perhaps more quickly than you imagine,” Whitley says.
“If you rely on your car to earn a living, this can cause a cascade of financial problems. Prioritizing this payment over other payments such as a credit card may make sense. This triaging approach extends to your rent and mortgage payments,” she adds.
A prioritized list of bills might look like this:
— Rent or mortgage.
— Car payment.
— Insurance payments.
— Utilities, probably including cellphone.
— Credit card payments.
— Student loans or other personal loans.
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4. Start Contacting Creditors
Whitley says that while she suggests prioritizing payments, “lower priority doesn’t mean ignore.”
She suggests contacting your credit cards to arrange for alternate payment arrangements if you’re falling behind.
“This may mean that your account will be closed to further purchases. However, it can forestall mounting late payment fees and repeated phone calls from debt collectors,” she says.
But if you’re behind on credit card payments, sooner or later the credit card company will likely close your account anyway. You might as well get ahead of the situation.
“The more you work with your creditors, the more they’ll work with you,” says Ann Martin, director of operations at the website CreditDonkey. ‘
“This means reaching out to let them know that you might be struggling to keep up with payments, asking for extensions or deferments and making partial payments. This will help to minimize your late fees and credit score impact when and if you can’t make a payment,” she says.
Cary agrees and says if you ask, you might be able to get late fees reversed, an interest rate adjustment or the opportunity to set up a payment plan. Remember, creditors want to be paid back.
5. Aim to Pay Only One or a Couple Bills Late Instead of All of Them
If you can, organize your bills so you aren’t late on everybody and just consistently late on one or two creditors. “Limit the damage to one account if possible,” Martin suggests.
She says that you may be better off to choose “a low-priority, low-interest account to skip payment on until you’re in a better financial situation. Missing multiple bills will multiply your problems with late fees and cut off services.”
Of course, this may not be possible. But if you had, for instance, a credit card bill that had a $500 monthly minimum, and by simply not paying it, you could pay every other bill on time, it may be best to simply not pay it for a few months — and be in hot water with that one account, rather than try to pay the credit card bill and find yourself consistently late with all of your creditors.
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6. Consider Other Income Sources
“Until things are back on track, you may need to look at additional income sources, like part-time work,” Cary says.
You could also ask a family member or a friend for a loan.
“If a timely loan from your parents keeps you from missing a major debt payment and losing valuable credit score points, it can be worthwhile to ask them, even if it will be a tough conversation,” Martin says.
7. Avoid Going Into More Debt
It might seem like a good idea to take out a payday loan, a personal loan or another credit card. But often, it’s not. There’s a good chance — especially if you take out a high-interest loan that you have to pay off in a couple of weeks — that you’re making today easier but creating a serious cash-flow crunch for yourself in about two to four weeks.
Remember, you need more money overall. If you catch up on your payments but owe more than ever, you’re likely going to fall behind on your bills again.
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What to Do if You Fall Behind on Bills originally appeared on usnews.com
