While paying bills is rarely fun for anyone, the activity becomes even more stressful when there’s simply not enough money to go around. It’s a situation familiar to many Americans who have been laid off, have needed expensive medical treatment or have gone through another family hardship — like a death or divorce.
Here are four tips for prioritizing when you simply can’t afford to pay your bills in full.
Slash Your Budget to the Bone
The first step is making sure your budget accurately reflects all income and expenditures. Only then can you decide where it’s possible to make temporary cuts.
Scour your debit and credit card statements for recurring costs you can live without — like streaming services and various memberships. Remarkably, 84 percent of Americans underestimate what they spend on digital subscriptions — believing they spend around $80 per month on average, but actually spending closer to $237.
You’ll also want to consider your essential yet flexible spending categories here, like food. There may be ways to reduce how much you’re spending on trips to the grocery store; such as by clipping coupons, shopping on sale days and switching to stores with lower prices.
Seek Advice Through Credit Counseling
Credit counseling is a free resource capable of providing deep, personalized insights into your financial situation. You’ll have the opportunity to pore over your budget with a trained professional of whom you can ask questions about debt and receive resources relevant to your situation.
Sometimes it helps to have a second set of eyes look over your paperwork, even if you feel you’ve already checked every nook and cranny for extra cash. You can even find a government-approved credit counseling agency through the U.S. Department of Justice.
Start with Essential Expenses
Once you’ve trimmed all the fat from your budget, it’s time to prioritize your expenditures. Most experts would agree shelter comes first, followed by utilities and essential food. You will also want to service any bills that allow you to find a job or keep working — like your cell phone plan and auto payment. Make a list of all these expenses you must pay in order to stay afloat.
Then it’s time to examine your debts, like medical bills and credit cards. Here, you’ll want to start by putting aside the minimum payment due for each account — which will be a low flat fee or a small percentage of the total balance. Yes, paying only the minimum is not a strategy recommended for the long term, as it will cost more in interest and lengthen the timeframe of debt repayment. However, in the case of a financial crunch it’s the best way to prevent late payments, as well as the fees and interest rate hikes they will attract.
Negotiate with Creditors if Necessary
Despite these efforts, you may find yourself falling behind on minimum payments. Reach out to your creditors sooner rather than later, if your debts start heading toward delinquency. Explaining your situation may earn you certain hardship provisions, like reduced interest.
If it seems there’s no chance you’ll be able to pay your debts in full, you may decide to negotiate with creditors — who may agree to accept a percentage of the amount due in lieu of getting nothing. You can try to negotiate on your own, or, as these Freedom Debt Relief reviews illustrate, you can try a settlement program in which professionals handle negations on your behalf.
Another potential strategy for dealing with debts during difficult times is a debt management plan through a credit counseling agency. Creditors may agree to lower interest and waive fees if you agree to a DMP and repay debts consistently over the course of three to five years.
It can be stressful to deal with bills when money is tight, but there are a few things you can do to help you prioritize effectively: Create a budget, cut all non-essential spending, seek professional help, make minimum payments and communicate with your creditors.