What To Do When You Can’t Pay Your Bills If You are Broke

What to do when you can't pay your bills

First it is not the end of the world

Take it easy especially if it is a temporary situation

Due to let's say COVID-19 and losing your job

You are not the only one in this situation plus governments working towards many relief programs for those who are impacted

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what to do when you cant pay your bills
what to do when you can't pay your bills

But what to do when you are working and can't pay your bills

In this situation, are you struggling and living paycheck to paycheck

Have your tried these simple hacks to pay off your debt fast

Or you built so many debts and incurred your credit cards to its maximum limit

70 percent of Americans who have credit cards debts admit they cannot pay it off this year

According to CNBC

I hope you have learned from your lessons

Below I will list the actions to take in order so let me begin with

Prioritize your bills

What to do if you can't pay your bills then prioritize it

What is more important that the following bills below in order

  • Shelter
  • Food
  • Utilities
  • Transportation

Take each one above and see if you can do anything about it

Shelter represented in mortgage/rent is somehow challenging to lower its amount

If you own a home and paying around 40% of your household income then it is good time to downsize

If you rent and single then there is no shame if you move to live with your parents

Explain the situation and ask them to accept a contribution from you

Just consider it a subsidized rent

For food represented in groceries, you can check how to save money on groceries

While utilities and transportation, you can check how to save money on electricity and 101 best ways to save money

Get rid of some of your debt

It is good time to think about your debt for a moment

I spent around 5 years paying $500 on a new financed car I really regret it

What to do if you can't pay your bills like furniture and a new car then get rid of them by selling them for the highest price as simple as that

Build a spending plan or budget

I have mentioned multiple times before to build your family budget especially if you are budgeting your money on low income

If you feel budgeting is complicated it is exactly similar to creating a spending plan

You need to analyze your expenditures and see what are the expenses that take the most out of your pocket

You can use this free spending plan to analyze the percentage of any expense to your total income

what to do when you can't pay your bills - use family budget
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Pay your creditors using fair percentage

What to do when you can't pay your bills

Use what is called fair percentage which is to sum all debts together and get the percentage of each debt to the total

For example, if you have credit card 1 as $2,000, credit card 2 as $900 and student loan as $3,600 with a total of $2,000 + $900 + $3,600 = $6,500

You can calculate now the fair percentage by doing the following

Credit card 1 percentage as $2,000/$6500 ~ 30%

Credit card 2 percentage as $2,000/$6500 ~ 15%

Student loan percentage as $3,600/$6,500 ~ 55%

I rounded all numbers to the nearest percentages

Now if you have an income of $2,400 and you deduct shelter, food, utilities and transportation of let's say $2000

You have to manage the remaining $400 to pay your debts above like

Pay to credit card 1 an amount of $120 which represents 30% of $400, $60 to credit card 2 which represents 15% and $220 to student loan which represents 55%

Negotiate your debts

I have to list the below debt negotiation methods to provide you with the full picture

But between you and me

I would only use the credit card balance transfer as my first option to consolidate some credit cards debts when you get an offer from this credit card with 0% interest for 12 to 18 months

It can happen that you receive this offer for let's say 3%

I would also go for it as you save yourself the 21% aggressive interest

my second option would be to use my home equity loan to pay for my debts

Again read below the different options to be aware of all of them

Debt consolidation loan

What to do when you can't pay your bills then use debt consolidation loan you consolidate many debts together by obtaining one loan that pays for all these debts

You work to pay one monthly payment instead of tracking multiple debts with different interest rates and pay them on time

Why and when to consider debt consolidation loan?

For the why, actually debt consolidation loan simplifies the way people pay their debts into one loan with one payment

When to consider it, if you have multiple debts with different interest rates and you manage to consolidate your debts into one loan with lower interest then go for it

Keep in mind if you consolidate multiple debts, make sure you consolidate all debts where the majority are on higher interest rate into one small interest rate

For example, if you have 2 debts with 10,000 and 500 with interest rates of 7% and 21% respectively

It does not make sense to consolidate your debts into a loan with 15%

Possible places to get debt consolidation loan

Credit Card Balance Transfer – my first option if interest is 0% or lower than home equity loan
Home Equity Loan – my second option
Line of Credit – my third option if it comes with low interest
Debt Consolidation Loan Through a Bank
Debt Consolidation Loan Through a Finance Company
Low Interest Rate Credit Cards

Debt management plan as known as credit counselling

Credit counselors will make an informal proposal on your behalf to your creditors to consolidate your debts into one monthly affordable payment

If they manage to drop the interest, you have to repay 100% of your debts

I want you to be very careful when it comes to debt management plan also known as credit counselling

There are so many non profit credit counselling organization and those that companies that offer their services

You have to do your due diligence to find a trust worthy company

Keep in mind that you still have to pay fees even if creditors refused to negotiate

Remember those who claim that they can improve your credit score are scary as it is impossible to change or remove anything from your credit report

Credit counselors should not coerce you to use their services beware of any doing this

Debt settlement

What to do if you can't pay your bills then debt settlement is the answer

It is a kind of arrangement to repay your existing debts under a totally new terms

This is the last option to consider if both the above debt consolidation loan and debt management plan did not work for you

Why? because usually you have to do it through debt settlement company

They will negotiate for you and if you owe let's say $10,000 they can settle you to pay $5,000 but pay attention to the below

  • You have to pay additional fees to the debt settlement company
  • It is a very slow process, it can take from 2 to 3 years to settle your debts
  • You have to stop payment when they are negotiating your debt which means more accumulated interest to be paid
  • It has bad impact on your credit score
  • It stays on your credit report for around 7 years
  • A high chance that it may get refused, who told you that lenders are obliged to accept debt settlement offers
  • IRS in US or CRA in Canada may consider the debt which was forgiven as an income and it will ask you to pay a tax for this forgiven amount

Finally I want you to follow the steps above in their order and definitely you would find a way out of this crisis with the least forfeiture

Now it is good time to start fresh and learn how to build your monthly budget


Michael launched Wealth of Geeks to make personal finance fun. He has worked in personal finance for over 20 years, helping families reduce taxes, increase their income, and save for retirement. Michael is passionate about personal finance, side hustles, and all things geeky.