What to Do When You Can’t Pay Your Bills

If you’re stressed about money, you’re not alone — more than 60% of Americans are living paycheck to paycheck, and according to Federal Reserve data from 2022, about two-thirds of Americans couldn’t pay for a $400 emergency in cash. While falling behind on payments is never ideal, there are things you can do to help remedy the situation. Learn the options you have when you can’t pay your debts.

Tips for Tackling Debt

Prioritize the Essentials

If you are unable to meet all your financial obligations, you will need to determine which bills to pay when money is tight. Your debts will fall into two categories: essential and nonessential. The general guideline is that an essential debt is one that could create serious problems if it weren't paid. Failure to pay nonessential debts would have far less serious consequences. Whether or not a particular debt is essential will be dictated by your individual situation. Common essential debts include basic needs like rent or mortgage payments and utilities, as well as child support, school tuition, car payments, unpaid taxes, medical and auto insurance, and secured loans. Nonessential debts may include credit cards, loans from friends and family members, and other unsecured debts.

Cut Costs Wherever Possible

When you find yourself in financial trouble, it’s important to slash your cash outflow as much as possible. If you've been prepaying your mortgage, car loan, or other debts, put that plan on hold, at least temporarily. If you've been making more than the minimum payment on your credit cards, scale back to minimum payments until you get your finances straightened out. You may also want to pause any contributions to savings accounts until you’re back in the black and consider eliminating any nonessential expenses like monthly housecleaning, dog walking or babysitting.

Contact Your Creditors

It’s normal to want to bury your head in the sand when you can’t afford debt payments, but tackling it head-on will help you in the long run. One of the keys to successful negotiations is to let your creditors know about potential problems as soon as possible. Explain the situation to them (e.g., job layoff, medical emergency). Let the creditor know what you're doing to remedy the problem (e.g., looking for work, cutting costs at home). Specify whether you need a temporary fix or long-term relief and continue to send at least minimal payments as a sign of your good faith effort. Utility service providers typically offer payment plans, fee waivers and emergency assistance programs, while credit card issuers often have financial hardship programs that can help you avoid late fees or credit score damage. If you have a mortgage, reach out to your lender to discuss possibilities for managing late payments. If your lender isn’t willing or able to help, then you may need to consider other options, such as refinancing the loan, selling the home, renting it out or negotiating a short sale. 

You Don’t Have to Do It Alone

Facing down debt is no easy feat. If you’re in over your head and unsure of what to do, contact a Farm Bureau financial advisor for advice on how to move forward.