That pile of bills can suddenly look like a mountain when you are financially in difficult times.
We’re big fans of budgeting, getting your bills paid on time, and avoiding debt, but in extreme circumstances you may have to decide which bills to pay and which to delay – and maybe even lean on credit cards.
“In normal times, this is not a good and solid strategy,” said Chad Parks, founder and CEO of Ubiquity Retirement + Savings. “But when things are difficult, you have to do what you have to do.”
We’re here to help you prioritize when you can’t afford to pay your bills.
What can I do if I can’t afford to pay my bills?
There are different levels of crisis management, but there are some basics that you cannot ignore when you are in a really desperate financial situation.
“The simple answer is home, food, and probably transportation,” said Parks. “In the worst case scenario, you can probably wait for the rest.”
So you know you have to pay for the basics, but figuring that out on your own can be overwhelming. Here is a four step process for prioritizing your invoices.
1. Create a barebones budget
OK, it’s not that the coronavirus is an excuse to throw any financial wisdom out the window. But it could mean adjusting your budget during a crisis.
The best place to find out what you owe and what to pay for is to write it down on a piece of paper.
“Take a snap on a page because what happens to people in general is that we have almost everything automatic,” said Parks. “You lose touch with the real numbers – you forget how much things are and you forget the implications that can affect your monthly budget.”
In order to prioritize, you should really assess the expenses you will need to survive. That includes food, but consider cutting your grocery or take-out budget. Even things like cables seem important as you are stuck in the home. However, could you downgrade from the premium package?
And don’t forget to check your credit card bill for recurring expenses, including subscription services you may have forgotten about.
2. Add up your funding sources
If you can’t pay your bills with your current income, you usually need to cut expenses and / or find additional income.
We’re still in favor of using a side gig for extra income. However, if you have recently been unemployed and are wondering where to get money to cover this month’s expenses, then you need to find all available sources and think ahead.
Just as you wrote down your expenses, you should write down your sources of funding, starting with your income, if you have any. Make sure to include money from side appearances, unemployment benefits, and any money you may get from government relief efforts (although you shouldn’t consider it an immediate source until you have the check in your hands).
These relief efforts can take the form of a check mailed directly to you, as well as local, state, and federal programs and incentives. Check your government website for daily developments as new sources and programs are announced regularly.
Add the totals to your checking and savings accounts as well – and yes, if you have an emergency fund, now is the time to tap it.
Next, calculate how much credit you have on your credit cards and what home lines of credit you might have. You may also be able to apply for a personal loan from your bank or credit union.
Again, we normally wouldn’t recommend using credit cards to pay for the basic cost of living, but you should cite every potential source.
Two accounts that Parks wouldn’t recommend, if at all possible: your 401 (k) or 403 (b). Aside from the damage it could affect your long-term retirement strategy, your protective status could become important if you don’t recover from this financial crisis and end up filing for bankruptcy.
“The only thing most people don’t realize is that a 401 (k) or a 403 (b) is a qualifying or protected asset,” he said. “This means that in bankruptcy proceedings you cannot be tricked into using that money to pay off your debts.
“If it were me, I would protect this asset at all costs because if I thought bankruptcy was on the horizon, I could at least keep the whole thing.”
3. How to deal with the bills you can’t pay
Now compare the lists: expenses vs. funds. Then project for the next six to 12 months at a time. It may not be pleasant, but at least you know what you are facing.
The only thing not to do if you still can’t pay your bills: ignore or dodge them. In addition to the short-term consequences – taking back the car, shutting down utilities – this can also affect your finances after the emergency is over.
“You don’t want to adversely affect your bankroll during this period if you can help,” said Parks.
Whether it is a landlord, credit card company, or other lender, dealing directly and honestly with an organization offers a better chance of getting out of this time in relatively decent financial shape and possibly even saving costly fees and penalties .
Before you call, practice what you want to say, including a brief explanation of why you can’t pay (job lost, illness) and how the lender can help (waiving a late fee, accepting a lower payment).
Get a written agreement on financial assistance – email is fine – rather than accepting a blanket statement or verbal confirmation.
Be realistic about your expectations.
“It won’t be automatic – you have to call and say, ‘I’d like to take advantage of this, and here’s my circumstance,” said Parks. “And if there’s no mandate, no help from government agencies, then it can’t hurt, too ask.”
4. Get on your way again
Remember that all of these measures should be temporary in order to keep you afloat during a crisis. Once you are in the position, you should go back to your previous strategies of paying off debts and building your savings.
However, these temporary measures could help prevent permanent damage to your finances and protect your family. So don’t be afraid to pursue all the options available.
Tiffany Wendeln Connors is an associate and editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.