Things To Do When You Cannot Pay Your Debts

As a first step, you’ll want to list all of the debts you owe from smallest to largest. Throw all of your excess funds at the smallest balance, while making the minimum payments on all your larger loans. Once the smallest balance is paid off, start putting that extra money toward the next smallest debt until you pay that one off, and so on.

Over time, your small balances should disappear one by one, freeing up more money to throw at your larger debts and loans. This allows you to pay down smaller balances first — logging a few “wins” for the psychological effect — while letting you save the largest loans for last. Ultimately, the goal is snowballing all of your extra money toward your debts until they’re demolished — and you’re finally debt-free.



Dump All Non-Essentials

Go over your list of expenses and cancel anything that isn't key to your survival. Cable/satellite, streaming services, newspaper subscriptions, extra phone/computer features, paid memberships  – they all need to go until you have your finances back on track.


Learn To Multitask And Earn Extra Income

Late payments and skipped payments are bad news for your finance, and could cause you to lose your home or car, so make a hard push to earn the money that you need to cover your budget gap. Sell some stuff, pick up a side job, roll coins – do everything in your power to pay your bills on time.

Check the side bar for bunch of ways to raise cash quickly; see if there are any ideas that you might have overlooked before you decide to go the non-payment route.


Renegotiate Loans and Medical Bills

If you're currently paying on loans or medical bills, free up some money by negotiating new repayment terms, which will allow you to reduce your payments or to temporarily stop making payments all together.
Medical bills are even easier to renegotiate. Just call the accounting office, explain what you can afford to pay, and they'll usually work with you.


Prioritize You Bills

If you still don't have enough money to cover your bills, it's time to decide which bills you're going to pay now and which are going to have to wait. Go through your list of monthly expenses, and mark all items that are vital to your existence as a top priority. This includes things like your rent/mortgage, utilities and insurance. Mark all secured debts as your next priority. This includes things like car loans, home equity loans and any other debts that have collateral attached to them. Mark all unsecured debts as your last priority. This includes things like credit card debt, personal loans and most services-related bills. Once you've prioritized all of your bills, make a list of the bills that you aren't going to be able to pay right away.


Talk to Your Creditors

Now, that you've done everything that you can to minimize the damage, it's time to let your creditors know what's going on. Call each one up before your bill is due (not after) and explain your situation. It won't be a fun call, but it could help to keep you out of trouble. Many creditors are willing to offer deferred payments, reduced payments, a late fee waiver or an extended due date, if you haven't had a problem in the past  – and that can go a long way towards saving your credit score and getting your finances back on track.




Contribtors: Tochukwu Mgbeahurike, H. Johnson and H. Erin