Sometimes life takes over and a lack of funds doesn’t match the overflow of bills coming through the mailbox. If that’s the case, don’t panic. Minor financial setbacks don’t need to lead to devastating circumstances. The first step is acknowledging there’s an issue and then contacting the creditor right away. Consider these suggestions if you can’t pay your bills right away.
Getting behind a house payment or utility bill or two can create a snowball effect. This can quickly lead to an overdrawn bank account and in some cases, foreclosure or repossession. See how to manage creditors and try to come up with a viable solution before the snowball starts.
Don’t Shy Away From Creditors. If You Can’t Pay a Bill, Here’s What to Do.
Analyze Your Budget
When facing a financial pinch, the first thing to do is sit down and analyze (or create) the household budget. See where cuts can be made. You don’t even have to cancel everything. Many entertainment services will reduce your package and some will even waive the fee for a month just to keep you on board. If going out to eat is your thing, look for specials, deals and consider the fact that dining out for lunch is much more inexpensive than dinner. The idea is to reduce unnecessary expenses to free up enough to pay the bill that really needs it (like the mortgage or rent).
Search for Local Help on the Necessities
For many, it isn’t a credit card payment or cable bill that’s the source of the financial pinch, but things like rent and groceries. Here’re a few places to look for help.
- Local Agencies: Many places have agencies who help those who are struggling. Try the Lions Club, Opportunity Council, or other. When in doubt, ask the local homeless shelter who they recommend. Many places have funds set aside for crisis relief. Once you get in touch with one, they can often also give you more resources to help get you out of a bind.
- Ask for Payment Arrangement: Whether you can or can’t get help from the local groups, you might be able to make payment arrangements with your landlord or utility provider. Most are fine with this, as long as you don’t make it a habit of getting behind.
- Review Provider Insurance: Many finance companies offer insurance to help reduce or put off payments in case of emergencies. So if you lost your job and can’t make your payment, it may not even be an issue.
Ask for a Settlement
The worst thing you can do is ignore creditor calls or a summons that’s been served to you. This gives the signal you don’t want to cooperate with collection efforts or pay off the debt. Contact the creditor and be upfront. If you have some cash to work with, ask about settling the debt for pennies on the dollar. For example, if the account is closed and the balance owed is $400 and you have $275 to work with, they may accept that amount and write the debt off. However, you’ll also want to make sure they list the account as “closed” or “paid in full” rather than written off. Otherwise, it could damage your credit standing.
Consider a Pro Rata Plan
When debt mounts, it’s hard to even make a minimum payment. Dave Ramsey suggests the Pro Rata Plan. It refers to the “fair share” when it comes to paying creditors. Basically, if you can’t make the monthly minimum payment, send each creditor their fair share after you’ve paid your necessities and important bills. Here’s a quick way to determine it:
- Determine your household income
- List what you spend on necessities including food, gas, rent, utilities and savings
- Subtract the necessities from your income
The leftover amount is what’s available to pay creditors. Split it between each one. Send a pro rata letter with the payment explaining what you are doing. Because you’re making an effort, creditors are less likely to pursue legal action.
Not being able to cover outgoing bills is frightening, but it can be resolved. Staying in contact with lenders and creditors is important to halt further collection action. The goal is to be able to pay bills responsibly and live a comfortable lifestyle.