Can’t Pay Your Bills? Now What?

What happens when you can’t pay your monthly bills? Keeping up with them is challenging enough if you live paycheck to paycheck. It can become even more difficult if you experience a drop in income due to a layoff or job loss.

Unemployment benefits can help to cover the gap financially, but those payments don’t extend indefinitely. When you risk potentially falling behind on bill payments—or have already missed a payment here and there—it’s important to know what options you may have for getting financial relief.

Many Americans Struggle With Bill Payments

While not ideal, being unable to pay bills is a situation that many Americans find themselves in from time to time. Approximately 64% of Americans live paycheck to paycheck, according to a March 2022 report. A higher-than-expected utility bill or a reduction in work hours could trigger late or missed bill payments.

Paying bills can become even more difficult when the drop in income is sustained over long periods of time. The COVID-19 pandemic created income disruptions that led many people to rely on unemployment benefits to cover their bills. An estimated 10% of Americans fell behind on bills as a result of the pandemic; 65% of those who fell behind said it would take at least six months to get caught up.

Emergency funds can help with managing bill payments when incomes decline or dry up completely. Unfortunately, according to Federal Reserve data from 2020, about one-third of Americans couldn’t pay for a $400 emergency in cash.

Consequences of Missed Bill Payments

Missing bill payments can have a negative financial impact, the severity of which can depend on the type of bill involved. From least to most serious, the kinds of consequences you may experience can include:

• Late fees
• Phone, internet, or utility service disconnects or disruptions
• Credit score damage
• Inability to obtain new student loans if you’re behind on federal loan payments
• Creditor lawsuits
• Vehicle repossession if you fall behind on a car loan
• Evictions in the case of late rent payments
• Foreclosures if you miss multiple mortgage payments

All of these outcomes can be financially damaging. If your credit score suffers because of late payments, for instance, then it can be more difficult to be approved for new loans or lines of credit. A creditor lawsuit could lead to wage garnishments, bank account garnishments, or property liens.

Options for Managing Late Bill Payments

In an ideal world, you never fall behind on bills and can avoid these kinds of consequences. However, if you do miss payments, there are things you can do to protect yourself financially.

When You Can’t Pay Utility Bills

If you fall behind on utility bills, it’s important to stay in touch with your utility service provider to avoid disconnection. Depending on your financial situation, your options for managing past-due payments might include:

Also, you may be able to get help paying utility bills from local social service agencies or nonprofit organizations (NPOs). These measures can provide some temporary relief until you’re able to make your normal payments again.

When You Can’t Pay Credit Card Bills

Credit cards can be convenient for covering expenses when you’re struggling with a loss of income. While total credit card debt declined in 2020, Americans still ended the year owing a collective $756 billion in credit card balances.

If you’re unable to keep up with payments, your credit card company may be able to help. Many card issuers have financial hardship programs that can offer any or all of these benefits:

Whether you’re able to qualify for these benefits may depend on the nature of the hardship that you’re experiencing. It’s worth asking your credit card company what options are available to help you avoid late fees or credit score damage.

When You Can’t Pay Student Loans

If you’re unable to pay federal student loans, you have some measure of protection already in place. The federal Coronavirus Aid, Relief, and Economic Security Act (CARES) introduced temporary student loan forbearance for federal loans, which has been extended through September 1, 2022. During this time period, you’re not obligated to make any payments toward your eligible federal loans, and no interest will accrue.

However, as these protections have an end date, it’s important to consider how you’ll manage payments going forward. Depending on your loan status, you may be eligible for additional forbearance or deferments through your lender or loan servicer. This may allow you to continue pausing payments temporarily.

If you have private student loans, you’ll need to talk to your lender about what help may be available when you’re unable to pay. Private student loan lenders aren’t required to offer the same forbearance or deferment options that you would get with federal loans, though some do. At the very least, you may consider refinancing private student loans to reduce your interest rate and make payments more manageable.

When You Can’t Pay Rent

Being unable to make rent payments can put you at risk for eviction. This process takes time, however, and requires landlords to seek legal action to have you removed from the property that you’re renting.

A pandemic-related moratorium on evictions has been extended numerous times since it began with the CARES Act. However, on Aug. 26, 2021, the Supreme Court rejected the CDC’s latest request to extend the moratorium to Oct. 3, 2021.

However, there is still help available. Renters in need of assistance should consult the National Low Income Housing Coalition’s website, which provides a searchable list of all the programs currently available.

Finally, if you’re unable to receive assistance from the state or federal government, you should ask your landlord about setting up a payment plan to get caught up with rent.

If a landlord is unwilling to negotiate back due rent, and if you can’t qualify for any type of government or charitable assistance, then you could move out voluntarily or wait for an eviction order to be processed. Keep in mind that either of those outcomes could hurt your credit rating and make it more difficult to rent a property elsewhere.

When You Can’t Pay Mortgage

The federal CARES Act included provisions for mortgage forbearance for eligible homeowners. Under these protections, it is possible to qualify for a temporary suspension of payments for up to 18 months and avoid fees,…