Carrying debt and incurring high interest charges can be frustrating, but sometimes life's circumstances can prevent you from paying your bills on time. Once behind on your bills, it's tough to catch up. You could hope for a windfall, such as a lottery jackpot, that you can use to pay your creditors. But most people don’t receive large lump sums they can use to pay off or pay down account balances. Consequently, it’s important to find other ways to catch up on the bills.
Stop Using Your Credit Cards
Getting cash-back rewards, points and travel rewards does not compensate for carrying high-interest credit card debt. Transunion.com states that, as of the first quarter of 2013, the average credit card debt for an American adult is $4,965 and the average annual percentage rate charged on account balances is 14.95 percent. This means the average annual interest cost, if the balance remains the same, is $742. Consequently, it makes sense to stop using your credit cards and use your debit card or cash for purchases instead.
Perform a Spending Audit
To find the source of your money problems and what you might do to catch up on your bills, review your bank statements, invoices and credit card statements for the past few months. Jot down how you spent your money and how you used your credit cards. If you have a lot of fixed expenses, such as rent or a car payment, you may have little money in the bank at the end of the month with which to pay off debt. It’s important to consider how you might cut these expenses. For example, consider a less expensive place to live or car to drive. If you have high variable expenses, such as restaurant tabs and shopping, find other forms of entertainment that are free or low cost to free up money to pay bills. For instance, check out books or DVDs at the library or throw a potluck dinner at your home.
Develop Reasonable Bill Payment Strategies
As you pay down your bills, set aside money for an emergency fund. If you don’t, you might pay down you bills only to use your credit cards again to make an emergency purchase. To free up money for your emergency fund, transfer your high interest rate credit card balance to a low interest rate card. If you have more than one credit card and each one has a high balance, you might contact a credit union or bank and ask about a consolidation loan. This move, in combination with your efforts to decrease expenses, will free up some money with which to catch up on some bills.
Negotiate With Creditors
If your income lags behind your secured and unsecured debt, it’s time to talk to your creditors, not the debt collectors who might be calling your home. Your goal is to convince the financial institution that you’ve missed a few payments but that you’ll be a good customer in the future. The first step is making sure that your records and the lender’s records agree, in terms of account balance and prior payments. As you negotiate with the lender, don’t make an agreement you can’t live with. If a creditor offers to cut your payment from $600 a month to $300, review your spending audit to make sure you can make the payment on a consistent basis. If the creditor refuses to lower the payment, attempt to negotiate late payment penalties and the interest rate you are charged.
- TransUnion: Consumers Made $72 Billion More in Credit Card Payments Than Purchases
- The Mint: Cash, Check or Credit?
- Daily Finance: 5 Simple Ways to Cut Your Monthly Expenses
- Bankrate: 5 Tips If You're Tempted By a 0% Credit Card
- Bankrate: Calculate Savings of Consolidating Credit Cards
- NOLO: Dealing With Debt: An Overview of Your Options
Billie Nordmeyer works as a consultant advising small businesses and Fortune 500 companies on performance improvement initiatives, as well as SAP software selection and implementation. During her career, she has published business and technology-based articles and texts. Nordmeyer holds a Bachelor of Science in accounting, a Master of Arts in international management and a Master of Business Administration in finance.