What To Do When You Can’t Pay Your Bills

Many years ago, when we were just starting our family and wrestling with a host of competing financial obligations – a mortgage, car payments, large credit card balances, insurance, switching from two incomes down to one after our first baby arrived – my mind began to flirt with thoughts of the blissful financial freedom that declaring bankruptcy might bring. How refreshing it would be to make those pesky credit card bills (and the annoying bill collectors) all just go away.

Looking beyond bankruptcy

In retrospect, I’m glad I didn’t pull the trigger on that particular choice. Among other things, the Certified Financial Planner™ Board of Standards doesn’t look kindly on that sort of thing for my profession. There would also have been the consequences of living a cash-only lifestyle for several years, paying more for insurance, possibly missing out on some job opportunities, and personal guilt over failing to successfully manage my family’s finances.

Personal bankruptcy was also a bit easier to claim back then (too easy some might say). Although I probably could have taken that route, I’m glad I elected instead to find other, better solutions to our money woes at the time. In my case, a combination of some moonlighting and working with a nonprofit consumer credit counselor to negotiate some friendlier terms with my creditors did the trick. That, and putting my credit cards on ice for a while.

Here are some other ways to get those bills paid without having to go to court.

401(k) mayday – proceed with caution

When there is more month than money at the end of the month as the saying goes, we have a cash flow problem. In this stressful moment, it can be tempting to send up a mental flare and reach out for a financial lifeline. Asking for help from friends or family is often just too uncomfortable for most of us.

However, our retirement plans at work (401(k), 403(b), etc.) can offer an enticing band-aid to patch up the immediate problem by taking out a retirement plan loan. As a one-time, temporary solution, this can be an okay solution, but much caution is advised. My colleague Cynthia Meyer writes extensively about this temptation – including how to do it and why you probably shouldn’t – in this article:  Should You Pay Off Credit Cards with a 401(k) Loan?

If at all possible, it’s best to let our retirement money do its job as retirement money and not take on the confused role of a personal financial bailout. If bankruptcy truly is the only alternative, perhaps then it is time to tap into your 401(k) piggy bank for a short term loan, although ONLY if that will keep you from going into bankruptcy — retirement plan loans are not forgiven in bankruptcy!

When you just don’t have the money to pay

Prioritize the important stuff

If you don’t have retirement assets to borrow or helpful family and friends to lean on, then it’s time to make some very hard choices. Take a look at your budget (you have one, right?) and identify the bills that must be paid – those that affect your health, welfare, and safety: rent/mortgage, transportation (so you can get to work and earn money), food, and utilities.

Letting some things slide if you have to

Everything else can slide for now, but not forever. Keep the roof over your head, along with the utilities and your transportation, and look into postponing or canceling things like cable, cell phones, memberships, even debt payments, etc. Then you focus on how to improve your cash flow situation.

When your cash flow is so tight that it is just impossible to pay all the bills, there are several resources to draw upon that can help you when things seem truly desperate:

  • Talk to your creditors; you might be surprised at how much is negotiable, particularly if your debt consists of medical bills
  • Your employer’s employee assistance program (EAP)
  • United Way and other charitable organizations (churches, Salvation Army, etc.)
  • Non-profit consumer credit counseling services (National Foundation for Credit Counseling, etc.)
  • Look into these other places to get cash in a pinch (and where not to!)
  • Your employer’s financial wellness program (especially if that program includes education and guidance from a team of unbiased Certified Financial Planner™ professionals)

Take time to breathe

Even though it might feel as if bills and late notices are raining down upon you nonstop, there is often another way to approach them so you can find a workable solution. As I was (eventually) happy to discover, the easy way out may not always be the best way. I’m glad I considered the alternatives, even if it did take a bit more work and endurance.

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