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The bills roll in each and every month without fail. Even if you have a budget, there are times when the bills might be more than you were anticipating.
You might have splurged on going out to eat, purchased too many expensive coffees, or spent too much on a new suit for work. It could also be a bill that was somewhat out of your control, such as a higher electric bill.
No matter what it is, what do you do if you can’t pay your bills?
I’ve had months where unexpected bills come in and I struggled to make ends meet. On one occasion, I had an unexpected bill arrive on my doorstep notifying me that my health insurance didn’t cover as much of my treatment as I thought it would.
Thousands of dollars were owed to the hospital and I had no idea how I was going to pay in less than thirty days.
The good news is that you might have options, just like I did. An unexpected bill is an inevitable part of life. Knowing your choices gives you the financial freedom you need to focus in and get your bill paid off.
Here are a few things you need to consider doing if you are struggling to pay your bills.
Contact Your Lender or Creditor
The bill comes in the mail with a due date that is quickly approaching, but there are no signs of more money coming your way. As soon as you know that you might be short on your payment, you need to call your lender or creditor.
Particularly now with many people out of work due to COVID-19, many lenders have been flexible with borrowers and are aiding those who have fallen on financial hardship.
If you need more time, you might be able to explain your financial situation and gain an extension on the bill. In order for this to be feasible, you need to have a clear picture of your finances.
Extending the due date is only helpful if you will be able to pay the bill in a few extra weeks. Make sure you know exactly when you would be able to pay the bill before asking for an extension.
In other situations, lenders or creditors might offer additional options. For example, you might benefit from a reduced interest rate that would lower your payment.
They might even work with you to set up a payment plan to cover the cost of the bill over the course of several months. You could delay or adjust some payments to make them more affordable for you.
However, keep in mind that you will eventually have to pay this bill even if it is a few months in the future.
When contacting your lender, you should come to the table prepared with key details about your personal finances.
They will likely want information about your employment and income, how much you can reasonably pay toward the bill right now, and when you will be able to begin making payments.
When I was dealing with a bill that I couldn’t pay in time, I thought I could just ignore it. Eventually, that bill got sent to collections and I started to be hounded by collections agencies to drop a check in the mail.
Even going to the mailbox was stressful because I knew I would find another reminder of my inability to pay.
Finally, I got brave enough to face the bill directly and I called the hospital that I owed. They were able to postpone payments for me for a few months and helped me to set up a payment plan that spread out my balance over time.
It helped that I knew exactly how much I could afford to pay each month so that we didn’t run into the same issue when the payments started. I was prepared financially to pay the bill by examining my budget and figuring out how much excess I had to offer.
It may not always be so easy though. Sometimes, lenders will notify the credit agencies that you have missed a payment. This can cause a dip in your credit score that may make future lenders a little wary about allowing you to borrow.
It could affect you when it comes time to get a new mortgage, an auto loan, or a personal loan. Make sure to speak with your creditor specifically about what will be reported to the credit agencies.
Get Credit Counseling
If you find that you are in over your head on more than one bill, you might want to consider opting for credit counseling. This service is typically low-cost and it can help you to better understand your finances.
Not only that, but credit counselors are typically well-versed in programs that can help you to pay your bills or relieve some of the burden. Some companies will even help you to create a repayment plan and negotiate with your lenders on your behalf.
Credit counseling is often recommended as part of a debt management program. These types of programs help you to manage your debt more effectively.
Instead of cutting a check to each of your lenders, you will write one monthly payment to the debt management program who will then divvy it up among your creditors.
With this type of program, expert negotiators can help to lower your interest rates and help you get your debt better under control. Unfortunately, it also means that you cannot open up any new lines of credit and you must also close out accounts that are not currently being used.
This is because the program wants to make sure you don’t get yourself into the same mess again, and you can’t exactly use credit you don’t have.
So, be prepared to pay cash for everything once you sign on the dotted line.
Closing out these accounts can also cause your credit to take a hit in the short-term. One of the factors in determining your credit score is how long you have had payment history on your accounts. When you close out accounts, you lose that history and your credit score may take a small dive.
However, debt management can help to improve your credit score in the long run by helping you build reliable payment history and lowering your debt-to-income ratio.
Remember that debt management is not free. They may offer you a free evaluation, but they have to cover their costs somehow. Most companies charge a small set-up fee and then a monthly fee (usually between $20 and $70) to manage your debt.
How to Avoid Overwhelming Debt in the Future
The good news is that there are a lot of things you can do to prevent yourself from coming up short on your bills month after month. I had to learn a lot of these lessons the hard way. My bills weren’t going away, but the way I managed them certainly needed to change.
And while some expenses like your health or insurance can’t be avoided, you can do yourself a favor by preparing for them ahead of time.
Consider which of these steps you could take now to help you put a bit of money aside for those pesky unexpected bills.
Get a Side Hustle or a New Career
The easiest way to save more money is to make more money. A side hustle can be an effective use of your spare time. Do you have any marketable skills? Are you talented at creating something that other people are willing to pay money for?
With the internet so readily available, there are thousands of ways that you could generate a little extra income from month to month.
Early in our marriage, my husband and I realized that we weren’t making very much money from our day jobs. We still had plenty of hours to spare in the evenings and on weekends, so we began to brainstorm what we could do for extra money.
I always loved writing and received good scores in school, so I began to look into freelancing short articles in exchange for money. He was a talented graphic artist, so he took on jobs designing logos and t-shirts.
Our side hustles eventually grew and helped us to put back a healthy amount in savings so that we weren’t strapped when one of our cars needed a repair or the electric bill was high from an unseasonably warm month.
If you don’t have time to start a side hustle and your current job doesn’t help you pay the bills, it might be time to look for a career change.
Think about what skills you have and what you are passionate about. Maybe you could take a few classes at the community college and graduate with a certificate that would help you to score a better-paying job.
Just be sure to apply for scholarships or grants in order to cut the costs of additional schooling. This way you’re not hurting your finances while trying to better your future.
It’s always worth considering how you could improve your finances this way. Of course, you could always stay at your current job and ask your manager for a much-needed raise.
Start a Budget
Do you know where your dollars should go? If you have been working for a while, chances are that you already know how much you make each month. However, a lot of people don’t know where all of their money goes.
That is why building a budget is crucial if you want to start putting more money back in savings. You need to have categories for your spending so that you can ensure that there is some money left over in case of an emergency.
I made my first budget when I was about eighteen and had just moved out on my own. I knew that I needed one, but I didn’t really know where to start. It wasn’t until I managed to spend more than I had when I finally realized how important keeping track of my spending really was.
Since then, I now break down every expense I pay and create a category for it on a spreadsheet. Next to each category name, I write down how much I spent on that particular bill from month to month.
The bills that were a set amount were easy – bills like my cell phone bill, my car insurance, and my rent. Others were a bit more difficult because they vary, but over time, I was able to get a feel for the average.
One of my tips for building a solid budget is to comb through old bank statements. See how much you are really spending in every category such as food, coffee, dining out, and clothing.
Chances are that you will be surprised how quickly money is slipping through your fingers. This is a great chance to regain control over your spending and set a limit on how much you can spend in these areas each month while still affording to put some money back in savings.
Pay in Cash
Most of us are used to swiping our card to pay for everything from a candy bar at the gas station to our grocery bill at the supermarket. Even if you are using a debit card, it can still be a challenge to track your spending this way.
By paying in cash, you are forcing yourself to come in under budget.
After all, how embarrassing would it be to get to the register only to realize you didn’t have enough money to make your purchases?
Paying in cash can be a bit inconvenient, I’ll admit. Mark different sections in your wallet for cash allotted for groceries, restaurants, clothing, and other areas where you tend to spend more than you should.
Never allow yourself to shift money from one category to another just because you might come up short. Money that is left over at the end of the month can automatically be put into savings.
And make it a habit to go to the bank or ATM each time you want to make a purchase, no matter how big or small. This way you’re only keeping enough cash on you to make the purchase, and that’s it.
You can’t be tempted to buy extra things if you don’t have the money for them!
Set Up a Savings Account
If you don’t already have one, make sure that you set up a specific savings account. When all of your money is located in your checking account, it can be tempting to spend it. Placing your money in a separate account keeps you from immediately pulling it out to spend on unnecessary items.
I was always the most successful financially when I had a savings account that was hard for me to get to.
I want an account that makes me wait a day or two to transfer funds around so that I have to think really hard about whether this purchase is an absolute necessity. At times, I have kept my savings account at a different bank than where I keep my checking account just to add an extra layer of hassle to tapping into that account.
The delayed gratification of spending really worked for me and you may find that it really helps you keep your spending in check as well.
Once you have your account set up, see if it is possible for you to set up an automatic transfer each month. This puts your savings account on autopilot so that the money is transferred over and stored away without any conscious thought on your part.
This is how I have my accounts set up so that I never run into a situation where I “forget” to set aside money for my savings account each month.
Saving for the Future
We all experience times when our bills are higher than we anticipate. The question is, are you prepared to pay? I know my unexpected bill caught me by surprise and I didn’t have the cash on hand to cover the cost.
Fortunately, I was able to contact my creditor and they worked with me without damaging my credit score.
If you have more than one bill that you are struggling to catch up on, it might be time to take more drastic action and get some help in the form of credit counseling or setting up services with a debt management company.
Make sure that you are never caught off-guard again by setting yourself up for financial success. Consider the ways that you could make more money and take charge of the money that you are already making.
Switch to paying cash where you can and deposit any leftover funds directly into your savings account. Setting up a savings account with automatic transfers is a huge win that could help you to avoid coming up short on your bills.
And when all else fails, ask for a raise at work or budget the money that you do have.
Not being able to pay your bills can be a scary experience. It can cause damage to your credit and cause you stress as you deal with calls from collections agencies.
By taking charge early and contacting your lender as soon as you know you won’t be able to pay, you can get ahead of this. Take some of these tips and see how you can apply them to your finances in the future.
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