Once you start getting behind on bills, it can be very difficult to catch up.
Late payment fees, interest, overdraft fees, and insufficient funds fees drain your checking account and add to your already increasing credit card balance.
Late fees vary from $25 to $35 and since they usually carry over to the next billing cycle, you might not even know you have them until you get your next statement. In the meantime, you’ll continue to accumulate interest on your balance and on the extra fees.
Overdraft and insufficient funds fees can cost you on average, $35 per transaction. So, if you pay for a purchase with your debit card or withdraw money from an ATM without having enough money in your account, you’ll be hit with that fee. So in essence, you could purchase a $5 meal at McDonald’s and be charged a $35 fee for the convenience of allowing the transaction to go through. If you look at that in terms of an annual interest rate, that’s over 200%! Hopefully, that value meal was worth it.
When you get behind on one of your bills, you may try to get caught up by delaying the payment of other bills or by bringing your account below zero thinking that everything will be fine once you get paid again. But by delaying your other bills, more late fees are charged and it gets harder and harder to pay all your bills on time.
It can become a vicious cycle!
But don’t despair. Keep reading this article for tips on how to start untangling your finances so that you can get back on track.
How To Get Caught Up When You’re Behind On Bills
Step One: List Out All Your Bills
First, you need to figure out how much you have to pay on bills each month.
To get started, make a list of all your bills:
- Utilities (electricity, water, garbage, cable, cellphone, etc.)
- Credit card payments
- Other loan payments
- Insurance payments (auto, life, health, etc.)
- Subscriptions (Netflix, Hulu, newspaper, gym, etc.)
- Any other recurring expenses
Include payment due dates, frequency (monthly, every three months, etc.), and minimum payments. Listing them by their due date will give you an idea of how they are distributed throughout the month. The link above contains a spreadsheet where you can create your list and include all of the information I mentioned.
After you account for all your monthly bills, review your non-essential expenses to see if you can eliminate any of them – even if it’s only temporarily.
Maybe you can cancel your Netflix account for a few months or exercise at home using workout videos until you get back on track.
Your first priority is to catch up with your payments and avoid paying any more penalty fees. You might need to make some small sacrifices now, but they’ll pay off in the long run.
And after you’re all caught up, you can go back to watching Netflix.
Step Two: Plan Out Your Daily Spending
Your next step is to project your income and expenses on a day-to-day basis to make sure you don’t have a negative cash flow.
Use a daily budget to make sure you’ll have enough in your account to pay your bills on time and determine how much you can spend on discretionary expenses each day.
Include your bills and discretionary spending (groceries, gas, entertainment, etc.) into your daily budget. Discretionary spending is usually where people go off budget, causing them to get behind on other payments.
But because these expenses are not fixed, this is also where you can save a few extra dollars that you can use to pay your bills. For example, by planning your meals and writing a grocery list, you can save money at the supermarket, avoid impulse purchases, and spend less money eating out at restaurants.
For the time being, you can plan date nights or family time that doesn’t involve spending too much money.
If you’re having trouble controlling your discretionary spending, consider using cash for them. By implementing this strategy, you’ll only be using your checking account for your bills and you’ll be withdrawing the amount planned for discretionary spending in cash from an ATM.
You then need to take the cash strategy a step further and only take the cash you budgeted with you. In other words, leave your debit and credit cards at home. Otherwise, you’ll be tempted to use them when you inevitably go over your allotted cash. It’ll make it easier to stay on budget and more painful to let go of an extra few dollars for an impulse purchase.
Stop using credit cards
In order to get your finances back on track, you need to stop accumulating more debt. So lock your credit cards away where they can’t tempt you anymore. You’re going to use the daily budget to make sure you have enough cash in your account to pay for your discretionary expenses without the use of a credit card.
You might think you have the self-control to use your credit card wisely, but chances are that if you’re reading this article, you’re already in trouble because of your credit card.
Spending money on a credit card is easier and less painful than using cash. You don’t see the dollar bills disappear from your wallet, so you may not even realize how much you’re spending until you get your monthly bill. And by then it’ll be too late.
Credit card companies will try and tempt you with cash back rewards and airline miles. However, you need to concentrate on fixing your finances before you even consider using your credit card to gain rewards. Credit card rewards are only worth it if you stick to your budget and pay off your balance every month. Otherwise, you’ll end up paying more in interest and late fees than what the rewards are worth.
Make minimum payments
Making minimum payments on your credit cards and loans will still decrease your balance (assuming you stop using them – see above), keep your credit healthy, and stop you from paying late fees. It’ll also allow you to redirect your money to other bills and expenses so you can get caught up.
Avoiding late and overdraft fees are more valuable than paying a few more dollars towards your credit card each month. In other words, avoiding a $25 late fee on a bill is much better than saving $0.15 in interest because you paid an extra $20 above the minimum on your credit card.
Step Three: Look for Flexibility
After you set up your daily budget, you can look for a little flexibility in your bill payment schedule. You especially need to do this if you project that your account will go negative any time in the next few weeks.
Some of your creditors might be willing to accept payments a few days late without charging you a penalty. For example, your landlord may allow you to pay rent up to 5 days late – giving you enough time until you get your next paycheck.
If you have trouble paying bills on time because they’re all due around the same time, credit card and utility companies may be willing to change your due date. Spreading out your bills over the month may allow you to have enough money to pay all your bills and discretionary expenses without using a credit card.
But before you contact your creditors and explain your situation, you need to visualize when and how much you can pay each month. Your daily budget will help you do that. Then, you can use an electronic calendar like Google Calendar can help you organize the due dates and set up reminders so you always pay on time.
With this information, you may be able to change your due dates online or by making a quick call to customer service. If you’re behind, companies might require you to catch up before changing your due date. Also, it might take a few billing cycles for the due date change to go through, so you should keep a close eye on your billing statements.
If your request is denied, you can check your calendar and daily budget to see if you can make full or partial payments earlier in your billing cycle. You don’t need to wait until the due date to make a payment. You just need to make sure you can actually make the payment at that time.
Step Four: Negotiate Your Bills
If you’re behind on your payments, you’re not the only one that wants to get back on track. You’re creditors also want you to pay on time because it’s in their best interest.
Don’t be afraid to call your creditors to work on a plan to help you pay on time. They might be willing to lower your monthly payments, reduce interest rates, temporarily postpone your due date, and/or waive fees that are keeping you from getting ahead on your payments.
You should also be prepared to answer questions about your income and expenses. If you still have enough money left over after covering all your basic necessities, you might not be eligible. That’s where the daily budget comes in handy.
Hardship payment plans are temporary – around 3 months and up to 12 months. And they might only waive or eliminate any fees and penalties after you make several payments on time.
Before you try to negotiate a payment plan, you should check your daily budget to make sure how much you can afford to pay your creditors. You need to tell them what you’re able to do, not the other way around.
Step Five: Focus on the Future
As you start getting back on track, begin to plan for future expenses.
It isn’t unusual for people to use their credit cards to pay for periodic expenses when they forget to budget for them. That’s how they end up with more debt than they can pay. It’s also a big contributing factor to getting behind on bills.
Saving for car insurance premiums, kids summer camp, and gifts around the holidays will help you avoid going into debt and eliminate future issues with your cash flow.
Use an annual budget to plan for irregular expenses and save a little bit every month.
Build Up an Emergency fund
You should also start an emergency fund so that you won’t go into debt when unexpected expenses inevitably occur.
If you’re working on paying off debt, I recommend you save one month of your expenses or at least $2,000.
If you’re out of debt, I recommend you save at least three months of your expenses. Anything above that depends on your susceptibility to true financial emergencies and what helps you sleep at night. For example, if your family only has one income or if your career field is unstable, you should save more money.
And don’t dip into your emergency fund unless it’s truly an emergency. True emergencies include an unexpected job loss, unexpected home repairs, unexpected car repairs, unexpected medical expenses, and unexpected travel to see a dying or deceased family member.
That pretty much sums up all of the true financial emergencies. All other expenses could be classified as expected and something you should have budgeted for. So, start budgeting!
Planning ahead for future expenses and emergencies will help you get control over your financial life and avoid ever having to pay your bills late again.
Step Six: Increase Your Income and Reduce Your Spending
If you’re behind on bills and spending more than you earn, you have three options.
Option #1 – Increase Your Income
Your first option is to increase your income. Are you afraid to earn more money because of taxes? Don’t be.
Here are some ideas:
- Sell some of the crap lying around the house.
- Get a roommate.
- Start looking for odd jobs and part-time work.
- If you get a large tax refund every year, consider adjusting your withholding to get more per paycheck.
Just do something!
Option #2 – Reduce Your Spending
Your second option is to reduce your spending.
Just remember that when focusing on reducing your spending, focus on reducing your major expenses first. Don’t focus on couponing as your fix. That’s not a good use of your time.
If you purchase items on impulse, check out these tips on how to control your spending.
If your credit is decent, you can always look at consolidating your debt.
Option #3 – Do a Combination of Both
Please see options #1 and #2 above. 🙂
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By following the step-by-step plan above, I’m confident you’ll get back to paying your bills on time.
If you have any tips or tools that help you make payments on time, leave them in the comments!