Many circumstances in life can derail even the best money management plans and leave us with less than what we need to pay the bills. What can you do if you are facing this situation? Increasing income and/or reducing expenses can lessen bill paying difficulties, but making changes often takes time. However, strategic planning can help you minimize damage until you are back on your feet.

Strategic planning involves both determining which bills are most important and paying those first and trying to set up payment agreements for any bills you are struggling to pay. Monthly obligations may include:

Mortgage or rent. Your mortgage or rent should be the first bill that you pay each month. Would you want to lose your house or be evicted because you were paying your credit cards? Probably not. However, if making payments is impossible, let your lender or landlord know – they may be willing to work with you. Is your mortgage or rent affordable long-term? If not, you may want to look for a cheaper place to live. If you owe more on your mortgage than what you can sell your house for, your lender may be willing to accept a short sale. If you have a lease, your landlord may voluntarily release you from it if you explain your hardship or find a suitable replacement tenant.

Car loan. If you have a car loan, making your payments on time is critical. In many states, a car can be repossessed after only one missed payment. Repossessed cars are typically sold at auctions for low amounts, and the lender may come after you for the remaining loan balance. If you cannot make your payments, call your lender. They may be willing to let you to skip a few payments or accept a repayment plan for delinquent payments. If an agreement cannot be worked out and you cannot resume payments, you may want to sell the car, especially if you have a spare one or can take public transportation.

Utilities. Delinquent utility payments can cause your service to be suspended or terminated, but some utilities are more important than others. You may not be able to, or want to, live without electricity or water. However, you could probably live without cable television. If a service is not needed and cannot be paid, you may want to cancel it before it is shut off. If the service is needed, call the utility company and ask about payment arrangements – you may not have to pay the full amount owed right away. You can also see if the company has any assistance programs for people facing economic hardship.

Student loans. Borrowers experiencing financial difficulties can often get a temporary suspension of payments through a forbearance or, less frequently, a deferment. What if you can’t get one? The only immediate consequence of not paying a student loan is usually credit report damage, but if you make no payments for 180 days, you are considered in default, with possible consequences including tax refund interception and wage garnishment. However, if your loans are public, you have a one-time right to get out of default with a “reasonable and affordable” repayment plan.

Credit cards and other unsecured debt. If you miss payments, your credit score will likely drop. If you stop paying long enough, your accounts may be sold to collection agencies, and you could even be sued. Still, the consequences of not paying unsecured debt are less severe than not paying your mortgage or car loan, and most creditors do not take legal action right away. This does not mean that ignoring your creditors it is a good idea, though. If making the required payments is difficult, contact your creditors about hardship programs (short-term arraignments that allow you to make smaller payments). When requesting a hardship program, explain why you are facing hardship, and let them know what changes you will make to be better able to afford payments in the future. If requesting a hardship program over the phone is not effective, try sending a letter.

When there is not enough money to pay for everything, it is easy to panic. Don’t. Instead, focus on what you can do. You may not be able to control everything that happens in your life, but you can choose what bills to pay first and how to deal with creditors.

1. Avoid borrowing to help pay your bills. It may provide temporary relief, but long term, it just creates one more bill that needs to be paid.

2. Find non-monetary ways to relieve stress. Instead of shopping, take a long, relaxing bath.

3. Even if bill paying is your responsibility, don’t hide financial problems from your spouse or children. Collaborate on what can be done to make improvements.

4. Resist the temptation to not open the bills you cannot pay. Leaving envelopes unopened doesn’t make the bills go away; it just prevents you from knowing important information about your accounts.

5. Delay two-week Caribbean cruises and other expensive trips if you are struggling to pay your bills. Many people spend a nice chunk of change on vacations because they think they will provide a break from their problems, but they usually create more financial headaches.

6. Contemplate areas where you can cut spending. Are you currently shelling out $4 a day for gourmet coffee? The free coffee at work can probably also provide the perk up you need.

7. Don’t forget to save, even if times are tough – they could be tougher in the future. Having savings will help you pay your bills regardless of what happens.

8. When you have extra cash, why not put it toward your debt? Not only will paying extra help you become debt-free earlier, but you could also save thousands of dollars in interest charges.

9. If your credit report is damaged due to missed payments, avoid using companies that promise quick fixes to repair it. Credit repair agencies charge for things you can do yourself for free (like disputing credit report inaccuracies) and often use dishonest or illegal tactics.

10. Monitor your checking account balance, and don’t write a check or use your debit card unless you know you have enough money in your account. If you overdraw or write a check that bounces, you may be charged hefty fees. Most financial institutions let you check your balance on-line or over the phone.

The Busy Family’s Guide to Money (USA Today/Nolo Series)
By Sandra Block, Kathy Chu, and John Waggoner (Nolo 2008)

Don’t let the title fool you. Most of the information and advice provided in this book is helpful to everyone, not just families. However, the title is fitting in that the book is perfect for people whose busy schedule doesn’t leave them hours and hours to read through a dense financial tome. A variety of topics are covered, including budgeting, saving, investing, buying a home, and reducing taxes. The authors also discuss topics that readers dealing with debt may find helpful, such as prioritizing bills, paying down credit card balances, managing student loans, and avoiding foreclosure. Keep your eyes peeled for the “Caution” and “Tips” sections sprinkled throughout the book – they contain brief, but valuable, nuggets of information. The book also includes numerous surveys culled from USA Today’s archives. The results won’t necessarily help you pay your bills, but they are entertaining. For example, one survey asked people if they thought it was harder to stick to a diet or stick to a budget. Want to know the answer? Read The Busy Family’s Guide to Money to find out!

Copyright © 2009 CCCS
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