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Money is one of the highest-ranking stressors for American adults.
The American Psychological Association reports that 60% of Americans feel anxiety over money. Many people experience even more intense worries during more stressful spending seasons. If you find yourself low on cash, what should you do when you can’t pay your bills?
As stressful as it is to be unable to keep up with your bills, the most critical step is to face the problem rather than ignore it. No money worries have ever disappeared by pretending they didn’t exist. The troubles will compound over the following days, weeks, and months if you don’t tackle them right away.
So, your bank account is low and your bills are high. What is the best strategy? Let’s walk through it together.
Keep in mind that you are not alone in this situation. The average American household carries almost
$7,000 in revolving credit card debt. That’s not counting any student loans, auto loans, mortgages, or other debt. With those numbers added in, the amount is a staggering
$152,612 per household.
And since the
rise in housing and
medical expenses is outpacing the increase in salaries and hourly wages, more and more people find themselves in financial trouble. If this describes you, here are six steps you can take to turn the corner.
Breathe. Take a few minutes to breathe and settle your emotions before you launch yourself into any financial plan. Stress takes a physical toll on the body, and taking time to breathe deeply will help lower your heart rate and blood pressure and fill your brain with fresh oxygen for clearer thinking. Spend a little time contemplating your financial intentions. What is your ultimate goal? Do you want to keep your home? Buy a house? Take a trip? Keep those goals continually in mind as you work through this process.
Gather all of your financial information. We mean ALL of it. This step can be a time-consuming process, but it is critical for you to have an accurate picture of what your financial situation is. Find a folder, shoe box, or desk drawer where you can gather and store everything. Here is what you need to collect:
- Mortgage statement or rental agreement
- Utility bills: gas, electric, water, phone, etc.
- Student loan statement or agreement
- Car loan statement
- Credit card statements
- Any other ongoing regular expenses or bills, such as child care or support, or payments on personal loans
Make a list of monthly due dates and amounts, along with the interest rate for each item, if applicable. There are loads of “systems” on the market for helping you track this information, but if cash flow is a problem, you don’t need to spend money on that. Remember – the idea is to keep more in your pocket! Paper and pencil work just fine. The goal in this step is to see an overview of what is due, when it is due, and what interest rate you are paying. Indicate which items are past due and which are current. It can be helpful to add in your pay dates and amounts, as well.
Prioritize. Now it’s time to buckle up and figure out your strategy. In general terms, debt falls into two categories: secured and unsecured.
- Secured debts make something you own (called collateral), such as your house or vehicle, serve as a guarantee that you will clear the debt. The legal document you sign to secure the loan is called a lien. You do not fully own those things until the loan is paid off. The lender can legally take possession of the collateral if you do not meet the terms of your loan, including making payments.
- Unsecured debts have no such collateral. Credit cards fall into this category. Lenders who fund unsecured loans cannot repossess anything, but they can turn you over to collection agencies.
In general, you want to focus on your secured debts first. Losing your home or your car certainly will not help you meet your financial goals. So, make these your biggest priority.
Contact your creditors. You’ve got all your information and a list of priorities. Next, you need to do something that makes most people feel uncomfortable, but it is a necessary step. You need to call each creditor to explain your situation. Since it doesn’t do them any good for you to stop making payments, most companies are willing to work with you. Now is the time to square your shoulders, take a deep breath, and ask for some support. This could be in a reduction in your interest rate or an exception to avoid late payments. If one representative tells you no, ask for their supervisor and make the same request. Keep going until you either run out of people or get what you’re seeking. This step can be helpful in further prioritizing your efforts, if needed; if you had a few bills that weighed pretty evenly, results of the conversation with creditors could make paying one more of a priority than the other.
Consider drastic changes. If you are barely scraping by or frequently find yourself unable to pay your bills, it’s time to change things. To get back in the black, you need to rethink your habits and priorities, always with those goals from step one in mind. Remember that even the smallest changes can add up quickly. If you’re willing to make some or all of the following changes, you can see progress quickly:
- Cut out cable. At an average cost of $45-$130 per month, eliminating this service is a quick way to have spare cash to put toward more necessary expenses.
- Skip the takeout. One meal at a restaurant costs a family of four an average of $52. Switching from eating out to cooking at home just once a week will save that family over $200 in one month.
- Consider other sources of income. Do you have an area of expertise that you could leverage as a tutor? Do you like to craft or have another skill that could help you sell goods or services? Are you a dynamo house cleaner with an eye for details? These are all legitimate ways to earn extra income and can often be scheduled around other jobs and commitments.
Take solace knowing you aren't the only person in history to find themselves in this situation. How you handle it and the outcome can be up to you, though. Don't be afraid to ask for help and use available resources (and some tough love) to get back on track.
Note: parts of this article were sourced from the American Psychological Association, NerdWallet, CNBC, the Balance and Money Under 30
Material in this blog should not be considered legal, financial or other professional advice. Neither the publisher nor TruStone Financial assumes liability for loss or damage as a result of reliance on this material. Websites not belonging to TruStone Financial are for information only. No endorsement is implied.