You’re behind on your bills. Maybe it’s due to a reduction in your income. Perhaps you’ve had some unexpected emergency costs arise. Don’t despair. I'm going to go over how you can create a plan to catch up on bills and get back on track.
According to the Federal Reserve Bank of New York, the total household debt reached over $14 trillion in the fourth quarter of 2019 based on new research released in February 2020.
Although mortgage balances make up the bulk of that amount, auto loans made up $16 billion, $46 billion was in credit card balances and $10 billion was debt from student loan balances. 189 million Americans have at least one credit card and the average balance for credit card debt is $8,398 per household.
That being said, it's completely possible to get caught up on your bills. Here are some key steps to follow.
Step 1: Get organized
One of the first steps to getting caught up on your bills is to know the full picture of your income and expenses. And that means it’s time to get organized. Whether you create an excel spreadsheet or you’re more of a pen and paper type, you want to layout every bill.
Once you determine what bills you have and organize as follows:
- Due Date
- Past Due Amount
- Minimum payment due
- Total balance Due
Don’t forget to check your credit card and checking accounts for automatic debits and withdrawals. I strongly suggest getting your free credit report to look for any other accounts that may have been forgotten.
Need help getting organized with bills? Check out the Clever Girl Finance Debt Prioritization worksheet.
Step 2: Evaluate your finances
Once you’ve listed all of your bills, it’s time to evaluate those bills and also your expenses. Determine which expenses are essential versus non-essential. Be honest about what is a need versus a want. Now is the time to limit your discretionary expenses. What recurring expenses can you reduce or cut entirely? For instance, you can review your spending on:
Take a moment to understand the information in front of you. Did you know you were still paying for a magazine subscription? Is there a free version of your favorite phone-app that you can use as an alternative? When was the last time you used your gym membership?
Recurring monthly expenses can add up quickly. Cutting all non-essential subscriptions and monthly expenses is a great way to reduce your costs and can help you get caught up on your important bills. The average internet bill is $58.49 and the average cable bill is $217.42. Have you considered cutting the cable cord and opting for a streaming service like Hulu, Netflix or Amazon Prime video?
When looking at your list of bills notice which expenses are variable each month. Find ways to reduce variable expenses like groceries, electricity and fuel costs.
Bonus Tip: Try a 30-day money challenge to reduce your expenses.
Step 3: Call your creditors
Next, it’s time to call creditors. First, start off by calling every company and cancel any service you no longer need or want. Many companies allow you to cancel your subscriptions online with no need to call.
Secondly, work on negotiating your bills. Haggling over prices may seem taboo, but many expenses can be negotiated down. Experts say that up to 80% of medical bills contain errors. Check your statements carefully. Don’t throw away money. If you don’t understand a charge call and get answers.
When negotiating a bill or asking for a better price, speaking to a live customer service representative is key. Consider bundling services together like your internet and cable service or home and vehicle insurance.
Lastly, ask for a payment plan. If you are behind on your bills ask to be placed on a payment plan. This will minimize the risk of your account going into collections and damaging your credit score. Recently, student-loan borrowers were able to pause monthly payments without penalty.
Another consideration for mortgages and vehicle loans is refinancing the loan for a lower interest rate. In order to make the most of the option, try to keep the loan length the same. If you have 30 months left on a car note at a 4% rate, consider refinancing for 30 months at 2.2%. Use a site like Bankrate to shop for and compare interest rates.
You normally won’t get penalized for asking for a lower interest rate or a better price on an expense like a cellphone plan. The worst that can happen is they say no. I’ve had success in getting better pricing for my vehicle insurance, cable bill, and magazine subscription. When in doubt, ask for a discount.
Step 4: Comparison shop
Don’t overlook the opportunity to switch companies for a better price. Check out alternative cell phone carriers like Boost Mobile or Mint Mobile to slash your cellphone bills. My husband switched to Mint Mobile last summer and loves it. Companies like Mint are mobile virtual network operators (MVNO).
Basically, they use the same cell phone towers as the major cell phone carriers. MVNOs enter into an agreement with a mobile network operator to obtain access to network services. Mint mobile uses the same towers as T-Mobile.
Recently, I discovered that using a program like GoodRx allowed me to pay less for prescriptions. GoodRx is a comparison website that collects prices and discounts from thousands of pharmacies. There is no cost, just download the app or visit the website to find coupons, yes coupons, for prescriptions.
Step 5: Earn extra income
Housing, food, and transportation expenses tend to make up the bulk of our monthly expenses. Reducing costs in those areas is crucial. However, cutting expenses isn’t always enough.
When you have cut expenses but still can’t make ends meet, consider ways to make additional income.
- Ask for a raise
- Switch jobs
- Sell your stuff
- Side jobs (Uber, Lyft, dog walking, delivery services, freelancing)
Some banks will offer cash bonuses for switching banks. It's worth doing some research.
Step 6: Execute your plan and catch up on your bills
You have made a list of all of your bills, lowered expenses where you could and have negotiated better prices and scored some money-saving deals. You even found a few ways to make some extra cash. Now it’s time to execute your plan to get caught up on your bills.
Create a spending plan or a budget. The best budgeting tool is the one you will use. Some prefer budgeting apps but I like a good spreadsheet. Test out different tools and see what works for you. Make a list of all of your expenses and include the amounts negotiated for your new debt repayment plan.
I am a huge fan of “setting and forgetting it.” I’ve been guilty of incurring a late fee for simply forgetting to submit payment. If you are like me and have missed a payment due date, then automate your payments.
Interest and late fees can be avoided by automating payments to be deducted automatically from your checking account. Most banks even have an option that will send mortgage payments to your mortgage company or property management offices to pay rent for no fee.
Whether you use automatic payments to pay the monthly bill in full or just the minimums, setting up a recurring payment will reduce the number of late payment fees you incur.
Getting behind on your bills can feel overwhelming and frustrating. It’s okay to feel scared and disappointed but don’t let panic paralyze you. Instead, use these steps to take charge of your past due bills and take control of your finances.