Starting down the road to recovery
Your Options When You're Unemployed and Getting Behind on Bills
by Gary Foreman
Bare Bones Budgeting
50 Things Anyone Dealing With a Debt Collector Should Know
Overcoming Financial Stress
My husband has been out of work for five months and the income he did bring in when he was working was double what I currently bring in. Needless to say, my checks and the unemployment is not paying the bills. I am starting to panic because bill collectors are calling daily. I cannot tell them when I can make payments so they continuously call at home and work. I feel like I am going to lose my mind because of this!
I am making sure that my house payment, utilities, and car insurance are paid, but everything else is getting severely behind. What do I do? Do we have any way of getting out of this mess? Any rights?
SS in WA
Sounds like SS is in a tight spot. We'll spare SS the obvious advice of cutting unnecessary costs. Let's rather focus on how to handle the mountain of bills.
First, it's important to get some breathing room. SS won't make good decisions if she's losing her mind! Begin by asking the collection agencies to stop calling you. Do it in writing. Use a postal method that proves that your correspondence was received. Bill collectors are required by federal law to stop calling you if you ask them.
Second, estimate how long the situation will last. Are you looking for a one-month solution? Or one that will work for one year? Estimating will mean honestly evaluating hubby's job prospects. Is it realistic to expect him to find a similar paying job in your community? If not, you'll need to make some decisions. Would SS be willing to move to another area and give up her job to replace his lost income? In any case, you'll need some estimate of when income should increase. This may be a good time to evaluate a change in career paths. Sometimes happiness is found in a lower paying, but less stressful career.
Third, SS will want to inventory their bills. How much does it cost each month for the basic necessities? Thankfully, it appears their current income covers the basics.
She'll want to look at her bills with an eye towards reducing or eliminating them. Start with the biggest ones: the mortgage and any car payments.
SS should check to see if they have credit insurance that could make payments until hubby is employed again. Many consumers forget that they even have it. A simple call to your creditor can tell.
Find out if refinancing your home is possible. Not for a lower rate of interest, but to stretch out the term of the loan. The longer the loan the lower the monthly payment. This could prove difficult. Chances are that her bill paying problems have negatively affected their credit score. But it doesn't hurt to ask.
Try to negotiate a new loan on your car. Either your current lender or another may be willing to allow you to finance the car over a longer period of time.
SS may find that it's best to either sell or even let one car be voluntarily repossessed. Repossession could leave her owing money after the car is sold, but at least the monthly payments and cost of insurance would disappear.
Having trouble affording your auto payment? See if refinancing into a lower rate is an option.
Now on the smaller monthly bills. SS needs to make a list of all of the bills with the monthly minimums and the interest rate being charged.
Contact the people that you owe money. Begin with the biggest bills. Explain the circumstances and offer to pay what you can. Before you contact them know how much you can realistically afford to pay each month. Do not make promises that you won't be able to keep.
SS may find that even after talking to her creditors that she can't cover all the monthly minimums. That leaves her with a few choices. One, pay some minimums and let other accounts go unpaid until after hubby returns to work.
A second option would be to work with a debt management firm. Often they can get creditors to reduce minimums and interest rates. Usually late fees will be waived. Talk to a couple of companies before choosing one. Ask them to explain what they can do for you and what you'll be charged for the service.
A final option is to declare bankruptcy. If job prospects are poor and you simply can't keep up with the minimum payments, a bankruptcy could be inevitable.
All of these choices will leave marks on your credit history. That can't be helped when you fail to pay bills. It may take up to 10 years before your record is completely clean. But the road to recovery will begin as soon as you take control of the situation and begin making payments at an agreed rate.
Let's all hope that SS's husband finds a great job real soon.
Reviewed July 2017
Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com. Gary shares his philosophy of money here. You can follow Gary on Twitter. Gary is also available for audio, video or print interviews. For more info see his media page.
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