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Tuesday, January 8, 2013

What to Do When You Can’t Pay Your Bills

There is no doubt that one of the most horrifying experiences is struggling with money and not being able to pay bills.  I've overcome and am still overcoming financial struggles but there are so many more people and families that are in a more difficult situation. 

There is no magic pill or “one size fits all” method of fixing financial struggles or what I call “financial dis-eases.”  However, here are a few tips to help you get started.

Tip # 1: Assess the Problem

The most important step is to assess why you can’t pay your bills.  This could be because of a job loss, a pay cut, increase in fixed expenses, unexpected medical bills, an expensive mistake or poor spending habits.  After understanding the cause of the problem, the next phase of this step is to write out your budget. I encourage you to download and read “5 Steps to Building a Budget That Works.”  You may of course see that you are spending more than you make.  By writing this down in detail, you will understand your fixed verses flexible expense. 
Tip # 2: Fix the Problem

Once you understand what the problem is, you can now begin the process of fixing the problem.  Most people’s problem (like mine was) may be overspending.  If this is your issues, the best cure for this financial dis-ease is financial abstinence by eliminating the use of credit cards or unsecured lines of credit.  Also, cut back on eating out and reduce or eliminate flexible bills like cell phone, land line phone, cable or any other unnecessary expenses.

However, many people aren't overspending at all.  They are dealing with being under paid.  Their income does not meet their baseline budget of their fixed expenses.  If this is your issue, it is now a matter of increasing your income.  This is not an easy cure and may require lots of hard work to find and work a part-time job. You may want to establish a home-based business that generates extra income. 

Here are few ways to handle your financial situation:

  1. Ask your family or friends for a loan or gift to assist you during your short-term struggle. Make sure that you only ask them once and make it clear that it is a gift (you do not have to pay it back) or it is a loan (you will pay back).  If it is a loan, establish the payment arrangements and make sure you pay them back on time.  Don’t be that family member that everyone ignores phone calls from because they know you are just going to ask them for money.
  2. Contact the company(ies) and creditors to explain your temporary financial hardship and request to skip a payment for the month to get back on your feet or to modify your payments, permanently or for a limited time.  Many financial institutions have a loan modification program that you may qualify for.
  3. Contact a debt management organization, like CCCS, to assist you with communicating with your creditors to reduce your monthly payments.  There are many organization out there, some free and some with a cost.  Make sure you do your research before you commit to their services and program, especially if they are requiring a fee up front.  I recommend that you find a non-profit debt management organization that does not charge a fee to assist you.
  4. Although I am not an advocate of and try to sway my clients away from this, you may need to consider a short-term loan, payday loan, title loan, etc.  This should be your LAST resort and make sure that you understand the terms, rates you will have to pay and all of the fees.  If this is used the wrong way, you could find yourself in a worse financial condition than you were before you got the short-term loan.  Proceed with caution.
  5. When all else fails and you have honestly tried everything stated above as well as other tips you've learned, another last resort option is bankruptcy.  “Bankruptcy is a tool, nothing more, nothing less” says Bankruptcy Attorney & Trustee Angelyn Wright of The Wright Law Alliance, P.C.  When used appropriately it can be the financial major surgery necessary to rebuild your financial well-being and give you a Fresh Start.  If you are considering this option, please make sure you understand what bankruptcy is and does.  When done the wrong way or with the wrong attorney, it may put you in a worse financial situation than you are now.  Get educated and ask questions before you proceed with caution.

Based on personal experience as well as observing and working with others who are dealing with and have resurrected from financial struggles, your financial situation can change if you are willing to work hard enough and can be disciplined.

By the way, don’t be afraid to ask for help.  There are many banks, credit unions, non-profit organizations, and financial coaches like myself that want to assist you.  Contact me at for consultation.