What to Do When You Can’t Pay Your Bills
Many people are struggling financially. According to the Urban Institute, more than 4 in 10 Americans are struggling to pay their rent, mortgage or utility bills in 2020. You’re not alone if you think “I can’t pay my bills” and you’re worried about handling all of your financial obligations right now.
The good news is that there are steps you can take right now to stabilize your financial situation. Keep reading to learn what to do when you can’t pay your bills.
Step 1. Stay Calm
You are in a position like this: I can’t pay my bills – what should I do? Our first tip is to be sensible even in difficult situations. MIT neuroscientists have discovered that stress leads to poor decision-making. This negatively impacts your ability to act rationally in a financial emergency as well.
If you’re frantically searching how to pay bills with no money as quickly as possible, take a step back. Try to deal with emotions like frustration, fear, and despair and stick to the facts. Find an honest explanation of why you can’t afford your payments based only on the facts.
Then, figure out how long your financial strain will last. It might be hard to look into the future. But you can still get an estimated timeline of how long it will take you to resolve the issue. This should help relieve some stress and anxiety and put you on the right path.
Step 2. Prioritize Your Bills
When we are approached by clients saying “Help, I can’t pay my bills,” we usually start by figuring out which bills are higher-priority. Interestingly, you can use Maslow’s Hierarchy of Needs. Specifically, which needs must be satisfied before other ones – food, shelter, rest, warmth vs security, belonging, esteem.
Priority #1 bills: Essentials
- Food: You need to put food on the table for you and your family.
- Housing: It’s equally important to have a roof over your head.
- Utilities: Electricity, heat, gas, waste, and water utilities are fundamental to human existence.
- Then, there are items that are technically non-essential but still are too important to ignore.
Priority #2 bills
- Taxes: Neglecting income taxes can cost you wage garnishments and property seizures. If you ignore property taxes, it cost you your home. In both cases, you will have even less money for bill payments.
- Child support: It covers a child’s needs, from housing to food to clothing and perhaps extracurricular activities. Failure to hold up your obligation may lead to driver’s license suspension, wage garnishment, federal penalties, denial of passports, or jail time.
- Car payment: Especially if you’re using your car for essential work.
- Insurance: If you fail to pay on homeowner’s, renter’s, auto, or health policies, there are financial and legal risks.
- Credit cards: Try to at least keep up the minimum payments.
- Student loans: This is considered a low-interest rate, so compared to other debts, it can wait a little longer.
- Medical bills: These bills are not as urgent as they tend not to accumulate interest.
Step 3. Create a New Budget
“I need money to pay my bills now”. But what if you already have the money, but you’re not doing the best job at budgeting? You may find out that it’s possible for you to restructure your spending and have more money for bills.
Now that you know your expenses, you can compare it to how much money you expect to bring in and make an actionable plan. The following steps can help you create a budget:
- Note your net income. After subtracting your social security, taxes, 401(k) and flexible spending account allocations, see how much money is coming in. If possible, find a way to supplement your income.
- Track your spending. You already have your priority one and two bills, but you need to realistically assess how you spend your money now. If you notice which category takes more money than needed, you’ll know where to cut back.
- Set your goals. List what you want to accomplish in the short term (less than a year) and long term. Your goals don’t have to be set in stone, but you should know where you’re heading. For example, it can be having all your priority one bills fully covered in the next 6 months.
- Make a plan. Be strict with yourself and decide where you’ll definitely reduce your spending. At this point, you should cancel all your unnecessary subscriptions, looking for cheaper places to live, make a budget-friendly meal plan, etc.
- Adjust your habits. This will require greater discipline, and you’ll have to make constantly make smarter decisions money-wise. For example, skip movie night in favor of a movie at home, avoid going out where you have to spend money, or postpone some purchases.
Remember that a budget only works if you are completely honest about your income and expenses. There is no reason to have a budget if you know you won’t be able to stick to it. So, try to stick to detailed and accurate information.
Step 4. Talk to Your Creditors
Of course, you can’t just approach your creditors and say “I can’t pay my rent” and expect them to let you off. But if you know you will be struggling to make payments in the near future, it might be beneficial for you to let them know. It won’t be a fun call or email, but it’s worth it.
Many banks, loan lenders, and utility companies have policies for hardship assistance if people can’t afford to keep up with their bills. Some of them offer deferred payments, reduced payments, a late fee waiver, or an extended due date. You’ll still have to resume regular payments in the future, but in the meantime, it should help a lot.
Generally, your creditors should be accommodating as long as you inform them in a timely manner. It also helps if you were never late on payments in the past and showed yourself as a reliable borrower.
Try to find out about all requirements that come with your hardship payment agreement. Getting the details upfront ensures that you won’t be in a worse position after accepting the help. If everything goes smoothly, there is a chance your lenders and creditors won’t report you as “late”.
Step 5. Consider Your Options
How can I pay my bills with no money? The closest thing is some sort of debt relief program. If your debt became overwhelming, you can consider one of the following solutions:
- Credit counseling – You will be provided with education, budgeting tips, and a variety of other tools. Counselors help also help you create a repayment plan and work with creditors. The ultimate goal will be to reduce and ultimately eliminate debt.
- Debt management – This option generally extends the amount of time over which the debt will be paid back. It suits people who are facing a short-term cash flow problem and expect their financial position to improve in the near future.
- Debt consolidation – This is a program that arranges a fixed payment schedule after consolidating credit card payments into a single payment. Your high-interest debts will be rolled into a debt consolidation loan on more favorable payoff terms (if you have a good credit score).
- Debt settlement – If your counselor negotiates with your creditors, you may ultimately pay less. With debt settlement, you are allowed to pay a lump sum at least 50% of the debt to resolve it. Still, that’s typically less than the amount you owe.
- Bankruptcy – Even though there are long-term consequences, it should be examined. Bankruptcy laws were written to give people a chance to start over after their finances have collapsed. In Chapter 7 bankruptcy, your assets will be used to wipe out the debts. In Chapter 13, you file a plan to repay your creditors – some in full, some partially or not at all.
If you can’t pay your bills and have accumulated debts, it’s always a great idea to consult with a professional. At DebtQuest USA, we have specialists that have experience in all kinds of financial problems, and we can help you as well. Contact us if you want to enhance your financial situation with real expertise.
What to Do When You’re Back on Your Feet
Now you know what to do when you can’t pay your bills. What’s next? It might be tempting to keep living as you did before. But the best thing you can do is to change your financial behaviors for the better in the long term. For example, when you get your finances back to normal, get into the habit of saving and budgeting.
In other words, when you’re finally in the position when you can say “I pay my own bills”, you shouldn’t waste this opportunity. Build an emergency fund that you can tap into should you ever face a similar situation. And lastly, don’t let your bills pile up – instead, face the issue as early as possible and remember that this is only temporary.