Marc A. Hebert's Money Sense: What to do when you just can't pay your bills
By MARC A. HEBERT
It happens - your hours are reduced at work, you just got divorced or perhaps you recently became unemployed - and the result is less money to pay your bills. In these situations, what you do now can impact your financial future and just how severe your financial problems might become.
Hike income, cut expenses
This might seem like the most obvious solution. You might want to increase your hours, get a better paying job or find a second job. Another option is selling assets that you no longer use. For example, you could have a huge yard sale.
Evaluate your expenses. Try to eliminate or reduce nonessential ones such as dining out and entertainment. The key is to protect the must-have items, such as your home. This would also be the time to start budgeting. It might take a while, but hard work and diligence can get you debt-free.
Review your debt
List your current debts and their terms. Some debt has more dire consequences than others if it remains unpaid. It might be possible to restructure some of your debt. To increase cash flow, you might try to increase the term of your debt. It will take you longer to repay and might add to the interest costs, but your ability to make the monthly payment might be more important at this point. Refinancing also might be a good option if you can get a lower interest rate. Consider the cost of the restructure versus the benefits.
Consolidating debts might be another option. Consolidating might allow you to pay overdue loans by rolling over the debt into one single loan. You might also be able to work out a longer payment period allowing for lower monthly payment amounts.
Even if you can't do either of these options, contact your creditor and explain that you are having problems financially. They might be able to work with you on a payment schedule. Calling early can facilitate the process.
It might sound obvious, but adding no new debt is a must.
If you aren't able to do these steps on your own, you might want to consult a reputable professional. Credit counselors will contact your creditors and attempt to negotiate. Sometimes they can reduce interest rates, get penalties and late fees waived or extend repayment terms. They are there to offer you advice as well. Before engaging a counselor's services, do your homework on the counselor and the company. Check out the company's credentials and fees.
You might find help at your local Consumer Credit Counseling Services (CCCS) or other nonprofit credit counseling service. These agencies provide the same basic services as a credit counselor but at little to no cost.
It is possible to restructure your debts in bankruptcy. Under Chapter 13, an individual with a regular source of income might gain court approval of a repayment plan. Chapter 7 allows the debtor to keep certain assets, but the rest is sold and the proceeds go to paying off creditors. The remaining debt is potentially discharged. Chapter 12 is for family farmers and commercial fishing operations. Chapter 11 is for businesses.
Bankruptcy is designed to allow the debtor a fresh start. Consider bankruptcy carefully and seek the advice of an attorney and accountant when considering this option. It can have a significant impact on your finances down the road.
While you might not be able to pay all your bills today, the future is a different story. Think of yourself as a person taking charge of your situation for both today and tomorrow.
Marc A. Hebert, MS, CFP, is a senior member and president of the wealth management and financial planning firm The Harbor Group of Bedford. Email questions to Marc at firstname.lastname@example.org. Your question and his response might appear in a future column.