Can’t afford to pay your bills? So, what’s next?
There are a number of methods for obtaining financial assistance.
What happens if you can’t pay your debts on time? It’s difficult enough to keep up with them if you’re living paycheck to paycheck. It might be much more challenging if your income is reduced as a result of a layoff or job loss.
Unemployment benefits may help bridge the financial gap, but they do not last eternally. When you’re on the verge of falling behind on your bills—or have already missed a few—critical it’s to understand your alternatives for obtaining financial relief.
• Missing or falling behind on bill payments may result in late fines, harm to your credit score, and other severe financial effects.
• If you’re having trouble paying your home or school loans, federal government programs may be able to help.
• Credit card providers may be able to assist cardholders who are unable to make their minimum payments.
• Think about the long-term financial implications of making use of relief programs.
Many Americans have difficulty paying their bills.
While it is not ideal, many Americans find themselves in a position where they are unable to pay their debts. According to a March 2021 estimate, almost 56% of Americans live paycheck to paycheck. Late or missing bill payments may result from a higher-than-expected electricity bill or a decrease in work hours.
When a decline in income occurs over a lengthy period of time, paying expenses becomes much more challenging. Because of the COVID-19 outbreak, many individuals have had to depend on unemployment assistance to pay their obligations. As a consequence of the epidemic, an estimated 10% of Americans fell behind on their payments; 66% of those who fell behind stated it would take at least six months to catch up.
When income declines or disappears entirely, emergency reserves might assist with bill payment management. Unfortunately, according to Federal Reserve statistics from 2019, over one-third of Americans would be unable to pay for a $400 emergency using cash.
Most states provide 26 weeks of unemployment benefits, however, depending on where you reside, you may be eligible for up to 20 weeks of extra extended unemployment benefits.
Missed Bill Payments Have Consequences
Missing bill payments may have serious financial consequences, the severity of which varies depending on the kind of charge. The following are some of the possible repercussions, in order of severity:
• Penalties for late payments
• Disconnection or interruption of phone, internet, or utility services
• Negative impact on credit score
• You won’t be able to get new student loans if you’re delinquent on your federal loans.
• Lawsuits brought by creditors
• If you default on a car loan, your vehicle may be repossessed.
• Evictions in the event of non-payment of rent
• Foreclosure if you don’t pay your mortgage on time.
All of these possibilities have the potential to be financially disastrous. Late payments, for example, might lower your credit score, making it more difficult to get authorized for new loans or lines of credit. Wage garnishments, bank account garnishments, and property liens are all possible outcomes of a creditor case.
Even though certain billers, such as utility providers, do not report late payments to the credit bureaus, you may be charged late penalties until your account is up to date.
Options for Dealing with Overdue Bill Payments
In an ideal world, you would never fall behind on your expenses and will be able to prevent this kind of penalties. If you do miss a payment, however, there are steps you may do to preserve your finances.
When You Can’t Pay Your Utilities
If you get behind on your energy payments, it’s critical to contact your utility service provider as soon as possible to prevent being disconnected. Your choices for dealing with past-due payments may vary depending on your financial situation:
• Getting help from the federal Low Income Home Energy Assistance Program (LIHEAP) (LIHEAP)
• Working up a payment plan that enables you to catch up on any missed payments.
• Obtaining late-payment fee waivers
Local social assistance agencies or charitable groups may also be able to assist you in paying your utility bills. These solutions may give temporary respite until you are able to resume your regular payments.
If your state imposed a moratorium on utility disconnects as a result of the pandemic, make sure you know when it ends to minimize service disruptions.
What to Do If You Can’t Pay Your Credit Card Bills
When you’re dealing with a loss of income, credit cards might be useful for meeting costs. Despite the fact that overall credit card debt decreased in 2020, Americans still owed $756 billion in credit card debt at the conclusion of the year.
If you’re having trouble making payments, your credit card issuer may be able to assist you. Many credit card companies have financial hardship programs that may provide some or all of the following benefits:
• Fee waivers for a limited time
• Lowering of interest rates
• A penalty annual percentage rate suspension (APR)
• Reductions in monthly payments
• Suspension of credit bureau negative reporting
The nature of the hardship you’re suffering may determine whether you’re eligible for these benefits. Ask your credit card issuer what solutions are available to assist you prevent late penalties and harm to your credit score.
If you have any 0% annual percentage rate (APR) offers on one or more of your credit cards, missing a payment might result in a much higher penalty APR.
If You Can’t Pay Back Your Student Loans
If you can’t pay back your federal student loans, you already have some safety in place. Temporary student debt deferment for federal loans was created by the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act, which has been extended through January 31, 2022. 7 You are not required to make any payments toward your qualified federal loans during this time, and no interest will accumulate.
However, since these safeguards have an expiration date, you should think about how you’ll handle payments in the future. You may be eligible for extra forbearance or deferments from your lender or loan servicer, depending on your loan status. This may enable you to continue deferring payments for the time being.
If you have private student loans, speak to your lender about what options you have if you can’t make payments. Although some private student loan lenders do, they are not compelled to provide the same forbearance or postponement alternatives as federal student loan lenders. At the absolute least, refinancing private student loans may be an option to lower your interest rate and make payments more bearable.
You may count any missed payments during the forbearance term toward Public Service Loan Forgiveness credits because to the CARES Act provisions.
When You Can’t Afford to Pay Your Rent
If you are unable to make your rent payments, you may face eviction. This procedure, however, takes time and necessitates landlords taking legal action to have you evicted from the house you’re renting.
Since the CARES Act, a pandemic-related eviction moratorium has been extended a number of times. The CDC’s last plea to prolong the embargo until October 3, 2021 was denied by the Supreme Court on August 26, 2021.
However, assistance is still accessible. Renters who need help can go to the National Low Income Housing Coalition’s website, which has a searchable database of all the programs presently available.
Finally, if you can’t obtain help from the state or federal government, talk to your landlord about putting up a payment plan to catch up on your rent.
You may either move out willingly or wait for an eviction order to be finalized if your landlord refuses to negotiate back unpaid rent and you don’t qualify for any sort of government or charity help. Keep in mind that any of these results might harm your credit score and make renting a home somewhere more difficult.
When You Can’t Make Your Mortgage Payments
Mortgage forbearance was included in the federal CARES Act for qualifying homeowners. It’s possible to qualify for a one-year temporary payment suspension under these safeguards, avoiding fees, fines, and interest on the loan. The deadline to obtain for assistance is September 30, 2021.
If you are not qualified for government disaster aid, your mortgage lender may be able to help you with forbearance or postponement of payments. It may also be able to assist you with refinancing your loan to make payments more manageable.
You’ll need to contact your lender to explore options for dealing with late payments. If your lender is unwilling or unable to assist you, you may need to explore alternative options, such as refinancing your loan. However, refinancing may demand a solid credit score and consistent income, so if you’ve just lost a job, you may not be eligible.
You might also investigate the following options:
• Putting your house on the market
• Keeping the house but renting out a portion of it or the whole thing
• Dealing with a short sale
• Allowing the house to go into foreclosure
Selling the house might assist you in repaying the mortgage and avoiding foreclosure. Even so, you’re taking a chance that the house will sell for your targeted price and that you’ll be able to walk away with enough cash to relocate.
If you want to retain the house, you might rent it out to supplement your income. Because this may have tax implications, you should consult with a tax specialist to see whether it makes financial sense.
You might walk away from the house with a short sale or foreclosure. In the first situation, the lender would agree to forgive any outstanding mortgage debt if the house sold for less than the amount due. Although the mortgage lender may forgive any leftover debt, foreclosure would not. Both have the potential to harm your credit, so it’s worth looking at other choices first.
If you’re thinking about refinancing your mortgage, make sure you shop around for the best mortgage rates.
It’s not nice to get behind on your expenses, but it can and does happen. If you’re on the brink of falling behind on your bills—or if you’re already behind—better it’s to be proactive than reactive. You may prevent the worst financial consequences by getting in contact with your billers and understanding your payment alternatives.