Everyone hits a rough patch at one point or another. Figuring out how to deal with your creditors will help smooth things over.
When you can’t pay your creditors, there’s a natural inclination to throw up your hands and run the other way.
Maybe you ignore the problem, hoping it will go away. Or perhaps you just get angry.
But what’s the best way to go about it?
Assess The Landscape
You can’t reasonably know how bad things are unless you put pen to paper. Write down your monthly expenses, as well as any money you’ve got coming in. Be as specific as possible, accounting for periodic expenses like car insurance and irregular purchases like gasoline and medical expenses.
One thing you shouldn’t account for right now is paying creditors except for your mortgage and car loan or lease. Those two classifications are the most important, but everything else can be dealt with.
Once that’s done, you know what you’ve got left at the end of the month to put to your creditors.
Determine Your Timeframe
If your inability to pay creditors is temporary – a short-term setback or job loss you expect won’t last more than a few months – then you’re going to want to figure out a way to work out the bills until the tide turns in your financial life.
If, however, the current financial situation is likely to last awhile then you’ve got to stop the blood loss and see a money doctor. Start with a reputable credit counselor or a lawyer who helps people with their bill problems.
Assuming your financial situation isn’t long-term, we’re in position to make the most of what we’ve got.
Low Your Federal Student Loan Payments
As we’ve discussed, federal student loans offer lots of repayment options. Call your student loan servicer and inquire about income-based repayment (if you’ve got no income, that IBR payment will be $0 per month). If that fails, talk about forbearance and deferment options that may be available to you.
Make Your Minimum Payments If Possible
No need to be a rock star and blow through those bills – you’re looking to keep your head above water until things turn around. Send the creditors their minimum payments if you can, and worry about the debt snowballs later.
If Not, Call Your Creditors
Pick up the phone and call your creditors as soon as you know you’re going to have trouble making the minimum payment. Let each of them know you can’t pay, and for how long you expect the situation to last. Many creditors will lower your payments for a few months, which will help ease the burden.
When you call the creditors, ask that your credit line be closed or frozen until your financial situation improves. This will prevent you from getting deeper in the financial hole while you’re struggling.
Set A Drop Dead Date
You may have gone into this situation thinking things would turn around soon, but you need to realize that the world has a funny way of screwing with you sometimes. That’s why you need a drop dead date – the date when you sit down and reassess the situation.
Eventually, creditors will stop working with you. If you can’t pay, they’ll stop being nice and start being serious. You need to have a plan for when that happens.
Once that drop dead date comes around, it’s time to talk with a lawyer who helps people with their bill problems. If you’re in either the Los Angeles area or in New York City, I may be able to help you. If you’re elsewhere, start asking around for a referral before you need someone.
Image credit: Punk Nomad