Anyone, even high earners, can experience a financial hardship where you can’t pay bills.
According to a SunTrust survey, one-third of family households that have an annual income over $75,000 live paycheck-to-paycheck which can mean disaster if there’s a job loss or unexpected bills come up.
6 Steps to Take When You Can’t Pay Bills
If you get stuck in a financial hardship and can’t pay bills, here are 6 steps to take as quickly as possible:
Step #1: Put the situation in perspective
Even though your financial woes may make you feel anxious, try to stay positive. You probably have a lot to be grateful for. Put the situation in perspective by remembering that it’s temporary and you will get through it.
Keeping a positive mindset will get you out of your predicament and help you prevent it from happening again in the future. Stay focused on what you can do to resolve the hardship and pay bills instead of wasting time feeling guilty or resentful about any past mistakes or misfortunes.
Step #2: Confront your situation
Your first instinct may be to toss bills into a pile or to silence your phone to avoid bill collectors. Ignoring the situation may bring temporary relief, but unpaid bills always catch up with you.
Confront your situation by creating a spreadsheet that lists each of your bills with due dates and balances outstanding. Having all your financial challenges in one place with help you feel more in control.
Step #3: Prioritize your bills
Bills for basic necessities such as food, shelter, and transportation should take priority. Don’t jeopardize your ability to get to work by not paying your car loan, traffic tickets, or auto insurance.
If you have money left over after covering the bare necessities, think strategically. First, pay bills that could hurt you the most if they go unpaid.
For example, if you must choose, having cable TV shut off for non-payment is less harmful than not having phone service to communicate with family, work, or even a potential employer if you’re job hunting.
Step #4: Communicate with merchants and lenders
Don’t let past due bills sit without speaking to a representative of the company you owe. Be honest about the situation and ask for help, such as a reduced payment amount, a payment due date extension, or a temporary forbearance on payments.
Often, when you’re proactive, collectors are more willing to offer leniency–especially if you have a record of on-time payment.
Step #5: Resist high-interest loans
When you’re desperate to pay bills, payday loan advertisements start to look appealing, but they’re not the answer. Payday loans have incredibly high interest rates that could be as high as 1,000%. That can cause you to go deep into debt.
Instead, use one a low-interest personal loan or credit card to get out of a tight financial spot and pay your bills in the short term. Here are a few options:
- Prosper – offers loans up to $35,000 with rates starting at 5.99% APR
- Lending Club – offers loans up to $40,000 with with rates starting at 5.99% APR
- Simmons Visa – offers a 7.50% APR with no annual fees
Step #6: Tap into additional sources of income
If your regular paycheck isn’t stretching far enough, think about income alternatives. For example, if you’re paid hourly, consider working overtime at your current job.
Look for a second part-time or seasonal job that would work with your primary work schedule. You could also offer services to neighbors, coworkers, family, and friends like babysitting, house sitting, tutoring, repair work, or pet care to bring in more cash.
How to Avoid Money Trouble in the Future
Although it’s impossible to predict potential problems like unexpected bills or losing a job, your best defense is to build an emergency fund. After you financial situation gets back on track, make a goal to create a spending plan and slowly build a strong financial safety net.