How to Deal With Overwhelming Debt
What to Do When You Can’t Pay Your Bills
The current economic recession has affected millions of Americans. You may be one of those people who are now faced with enormous credit card debt. You may have fallen behind with your mortgage payments and other personal loans. There may be perfectly valid reasons for your financial problems- job loss, medical expenses, reduction in income. Add to this the rising cost of gas and food and it’s easy to see why so many people are having difficulty paying their bills each month.
Unfortunately, your bills keep coming even when your financial situation has changed. If the payments to your creditors are late every month or you are using credit cards to pay off other debt, it’s time to take a serious look at your finances and start taking positive steps towards climbing out of your financial hole.
Recognizing that you are in trouble is one of the first things you can do to start moving ahead, but it is sometimes the hardest. No one likes to admit that they don’t have enough money to make ends meet or are having a hard time providing for their family. But ignoring the facts won’t help. As much as you would like to “wish away” that pile of bills, they will keep coming. And along with them will be late fees, rising interest rates, and a ruined credit rating.
The bottom line is that your creditors want to be paid. Most or all of them will be willing to work with you to arrive at a reasonable repayment plan which allows them to receive regular payments but still gives you some breathing room. But unless you contact them and explain your situation, they have no way of knowing any of this. They only see a customer who is consistently late with payments or skips them altogether.
Here are some things you can do when you find you can’t pay your bills and need help:
- Before contacting your creditors, make a simple budget and see exactly where your money is going. You need to list all your sources of income (money coming in) and the total amount of what you owe in monthly payments to all of your creditors (money going out).
- List them from highest payment to lowest. Determine what you can actually afford to pay and make a note of it.
- When preparing your budget, look for places to cut expenses. This can free up money towards paying other bills. Consider cancelling the cable service or if you have a cell phone, cancel your home phone. The point is to get your budget down to the bare bones. Having food on the table is more important than having a hundred television channels to watch. You may have to make personal sacrifices but it will pay off in the long run.
- Go through your personal belongings and find items which you can sell for added income. Furniture, clothing, or books can all be sold and the monies earned can be put towards your monthly bills.
- Decide which debts are the most important. Normally, secured loans, such as a mortgage or car loan, take priority since the creditors can take back these possessions. Call these creditors first. In all likelihood, these payments will still be fairly high. You need to know how much money you will have left in your budget to pay your other bills after you have paid the most important ones.
- Call your creditors and explain the circumstances. The best time to do this is before you are actually behind in your payments or have made 4 late payments in a row. The earlier you speak with them, the more likely they will be to work with you on a favorable repayment plan.
- Ask them if they offer any hardship plans. For example, the lender for your car loan may allow you to skip 1 or 2 months of payments and extend the terms of your loan for the additional 1 or 2 months. They may lower the interest rate or offer partial payments for a specific amount of time. Whatever they offer, make sure it fits into your personal budget of what you can afford to pay.
- Any offers made to you by your creditors should be in writing. Keep these in your financial records so there is never any question regarding the terms of your repayment plan.
If you have reached the point where paying your monthly bills is not only difficult but nearly impossible, don’t panic. There are options available to you to reduce your debt and improve your financial situation. But the important thing is to take positive action, not ignore the problems. If you deal honestly and openly with your creditors, you have the opportunity to protect your credit rating and perhaps even save your house.
