6 Steps to Take When You Have More Bills Than Income
Many of us experience a point in life in which we have more bills than income. Debt might be piling up, and you also have other bills, like rent and insurance, to cover.
At some point, it becomes difficult to cope with the mounting debt and growing bill obligations. But what can you do when you don't have the income that allows you to keep up with everything?
Here are six steps to take when your debt and bills exceed your income.
1. See Where You Stand
One of the reasons that you feel overwhelmed when you have more bills than income is that you aren't in control of the situation. Knowing where you stand is a good first step toward taking control of your finances.
Sit down with all of your bills and find out what you owe. Sort through your bills and consider your income. Be honest about where you stand, and be realistic about the situation. Once you know where you stand, you can make a plan and go from there. (See also: Quick Tips for Organizing Your Finances)
2. Trim the Fat and Make More Dough
Experts estimate that most households waste between 10% and 15% of their monthly income. This means that you probably have some fat to trim from your budget. Go through your spending and identify the items that are unnecessary. These are the things to cut from your budget immediately. Look at things like dining out, entertainment, and apparel. You might be surprised at where you can cut back. (See also: 101 Ways to Save Around the House)
Another strategy is to look for ways to increase your income. You might be able to get a part-time job, start a side gig, or do odd jobs to boost your income. Even selling some of your unused household items online can help you find a little extra money to put toward your bills. (See also: Great Side Jobs)
If you combine cutting costs with adding income to your budget, you will be more likely to tackle your debt and bills much more effectively.
3. Prioritize Your Debts and Bills
Even after trimming the fat from your budget, you might still need to make hard decisions about which bills to pay. You need to prioritize your debt and bills to make sure that the most important items are taken care of.
First of all, look at the secured debts. This includes your mortgage and car loan. If you don't pay these bills, you could lose important assets. You don't want to lose your home, and you probably need your car to get to work. Also, consider important bills like insurance and utilities. Those are your priorities.
Other bills, like those related to unsecured credit cards, might not be as important. You might need to move those to the bottom of your list as you work to reform your finances. This can lead to problems with your creditors, though.
4. Deal With Creditors and Debt Collectors
When you have more bills than income, chances are that you will, at some point, have to deal with debt collectors. It's important to know your rights when it comes to debt collection. The Fair Debt Collection Practices Act dictates how debt collectors can interact with you. (See also: Expert Advice on Debt Collection)
As you try to get on top of your situation, you might need a little breathing room. Your best option is to call your creditors and explain your situation. In many cases, your creditors will help you come up with a payment plan that you can handle. However, sometimes you end up with debt collection calls. The good news is that you have rights. If you let debt collectors know that your employer doesn't want you called at work, the collectors can't do so. Additionally, they can't call before 8 a.m. and after 9 p.m. Collectors also have to stop calling you if you ask, in writing, for them to stop contacting you that way.
5. Consider Credit Consolidation
One way to get your debts under control is to consolidate them. When you have a lot of bills, it can be difficult to keep track of everything. Plus, the varying interest rates on your debts may be high. Credit consolidation can help you put all of your unsecured debts in one place — with one interest rate and one payment.
You can also use a credit counseling agency to help you manage your debt. You do need to be careful when using credit counseling, though, since not all credit counselors are reputable. The government offers advice to help you find a reputable credit counselor that can help you make a plan and manage your unsecured debt.
6. Re-Establish Your Credit
When you've been dealing with this problem, your credit is likely to be impacted. Part of getting back on track is re-establishing your credit.
If you want to start building your credit back up, one of the best things you can do is apply for a secured credit card. You won't be able to get an unsecured credit card if your credit is especially poor. A secured card is a good first step. As you make regular payments, you can improve your credit score. (See also: What Are Secured Credit Cards?)
After you have used your secured card for a few months, you might be able to qualify for an unsecured card.
You should also check your credit report for inaccurate information and have it corrected. For the most part, though, if your bad credit is the result of your debt situation, the best thing you can do is reform your finances and start using credit again in a responsible manner. Once you have made payments on time, and in full, and pay down some of your debt, you should start seeing improvements in your credit situation.
Have you climbed out of a tough debt situation? What helped? Please share your experience in comments!