Dealing With Your Creditors When You Cannot Pay Your Bills

Financial problems
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Falling behind on your bills can be one of the most stressful things in life. You may find yourself in this situation due to a job loss or other life change. But when you find yourself in a situation where cannot currently afford to make your payments, then you need to work with your creditors to find a workable payment plan.

There are also other several important steps you should take if you find yourself falling behind on your bills to help mitigate the damage. Follow the below steps if you find yourself unable to make your financial obligations.

Create a Budget and Prioritize Spending

First, you need to sit down and look at your budget. During this process, you should prioritize your bills and the order that you are going to pay them in. Think of it this way: You need to meet your basic needs first: food, housing, utilities, and potentially your transportation costs.

Next, you need to prioritize your spending. You should not be spending money on entertainment, eating out, or going on vacations if you are not able to pay your bills. Additionally, you should try to keep your grocery bill low. Try substituting fresh fruits and veggies for cheaper canned versions, buying on sale, and clipping coupons. It's wise to adopt a bare-bones budget and cut your spending as much as you can to try to improve your financial situation.

Work to Catch Up on Necessities First

Look at the amount you have left after you have met your basic necessities. Compare this to the amount you owe to creditors each month. If these amounts are equal, or if you have extra money after your debts are met, then you are in better shape than you thought. Then all you need to do it continue with your budget and continue to pay your debts each month.

If you do not have enough each month to meet your obligations, you will have to try another strategy: cutting your budget even more, changing your living situation (i.e., moving in with family or friends, or renting a cheaper place), or setting up a discounted payment plan through your creditors.

Try Setting Up a Payment Plan

If you cannot pay the full payment amount on certain bills, you should contact your creditors and explain the situation. Ask them if they can temporarily lower or suspend the payments until your financial situation improves.

You may also write a letter to your creditors and explain how much you can pay them each month. It may help to include a copy of your budget so they can truly see your financial situation.

This may not stop your credit from being damaged, but they are good-faith efforts to pay as much debt as you can. This may help you if legal action is taken against you for failing to pay your debt. You should also document all calls with creditors and debt collectors, and send all letters via certified mail so that you can prove that you sent them. 

Find Extra Money

Putting it simply, if you find yourself in a position where you cannot pay your bills, you need to get caught up as quickly as possible. In addition to adjusting your lifestyle, this may mean taking a temporary job or a part-time job to make the extra money you need to cover payments.

You may also need to make big changes to what bills you owe each month. Determine if you can't afford your car payment, which may be a reason you are falling behind on other bills. Selling your car may help you get caught up. You may also need to sell other items to help you get caught up on your payments. Consider selling on eBay or Craigslist to see if you can raise money to help you cover your expenses.

Make Sure You Stay Current on Mortgage and Necessities

Regardless of your financial situation, you should continue to pay full payments on your mortgage, even if it means not paying on credit cards. You do not want to lose your home, as this could further impact your financial situation.

If you talk to your mortgage company they may be able to decrease your monthly mortgage payment. Remember, if you fall behind on your mortgage work to get it caught up before you worry about the rest of your bills.

Other tips:

  1. Most credit card companies and banks will not settle debts with you until you are several months behind. However, informing them of your current situation may help you because they can temporarily lower payments or reduce interest rates.
  2. When you contact creditors, calmly explain the situation. Being polite and respectful will be more beneficial than yelling and screaming. If you need to keep asking for a manager until you speak to someone that can help your situation, do so. Be persistent and patient.
  3. If you are receiving collection calls, explain the situation and your plan. If your creditors harass you and yell at you simply hang up the phone. That kind of treatment isn't acceptable, even if you are behind on your bills.
  4. Although it is frustrating to not have extra money, it is important that you stick to a strict budget until you improve your financial situation, either by finding a new job or changing your lifestyle.
  5. Even when struggling financially, make your house payment a priority or you risk losing your home. However, if your house payment is too much for you, then you should sell it before it enters foreclosure. This alone can relieve a lot of your financial pressure and stress.
    Updated by Rachel Morgan Cautero.