Even though falling behind on bills is stressful, don’t let it turn into a downward financial spiral. Taking control of your finances, creating a plan, and taking action will help you get back on track as quickly as possible. So here’s what to do if you find yourself struggling to keep up with bills:
The first step is getting organized by gathering all of your bills together. Then separate them out based on which ones are current vs. past due. Be sure you have the monthly amount due, including any amounts that you need to catch up on. If any are in collections, read: Understanding Collection Debt.
Create a Budget
You might think that this seems pointless because you’re already behind on bills. However, it’s crucial to have a budget so you know where all of your money is going and where you can make some temporary or permanent reductions or cuts in spending. Include all monthly, quarterly, annual, or other on-going expenses and bills.
Prioritize and Reduce Spending
Now it’s time to go into crisis budgeting mode and make some spending cuts/reductions. Prioritize the important expenses first, such as anything that keeps you safe, healthy, and with a roof over your head. This includes housing/utilities, insurances, groceries, and necessary transportation, for examples.
If you can at least temporarily reduce certain spending (dining out, coffee shop, cable, etc. that will help you get your finances back on track. But if you find out from creating your budget that you need to make some permanent changes, you’ll need to make some tough decisions.
Contact Your Creditors/Service Providers
Did you know that some companies will allow you to skip a payment (forbearance)? Try calling your credit card companies, car loan and student loan lenders, etc., let them know what’s going on, and check if this is an option for you. Note: never agree to anything you can’t afford. Be sure to keep track of when your next payment is due if they do offer you a temporary forbearance.
Next, it’s time to face the music and call any company with which you are behind on payments. It’s helpful to know what you can afford before calling…that’s why you did all the other work first. Call to let them know what’s going on and that you want to work out affordable payment arrangements to get caught up. You can even suggest a realistic payment amount and see what they say. Again, just don’t agree to anything you can’t afford.
Wait It Out and Stay Strong
Continue with crisis budgeting and avoiding spending on non-necessities until your budget is stable. And don’t forget to resume on-time payments of anything you got a forbearance on. Once you’re back on track, then you can afford to spend a little more money, but…pay attention to #6:
Now that you’ve weathered your financial storm and you’re no longer behind on bills, it’s time to reflect and think ahead. What was the reason you fell behind in the first place? Is it because you were overspending? If so, then it’s best to stick to some permanent spending reductions.
Or did you fall behind because of an unexpected expense that you couldn’t afford on top of everything else? If that’s the case, then it’s time to start saving. Do whatever you can to set aside money each paycheck or each month into a separate savings account. This should help you prevent a future financial crisis.
Aim for 3-6 months’ worth of your monthly expenses so that you’re truly prepared if you run into an emergency expense, job loss, income reduction, or illness/injury.
Whether you’re behind or caught up on bills, if you want to pay off debt faster, contact LSS. You can meet with a financial counselor who will create with you a realistic budget, action plan, and will provide your debt repayment options. Call us at 888.577.2227 for your FREE session or GET STARTED ONLINE.
Author Elaina Johannessen is a Program Director with LSS Financial Counseling.