Money Management Newsletter

Credit Series:

If You Can't Pay Your Bills

Dr. Jo Turner, CFP

Professor, Family and Consumer Economics

If you are swamped with bills, go ahead and take action.  Don't wait until they are so bad that you cannot do anything about them. Some steps to take are:

1. Talk to your family about the problem.  Work together as a family to make it through this rough time.
2. Cut back on spending.  For one month, don't spend any money on things that are not really necessary.
3. Talk to the people you owe -- your creditors.  Try to work out a payment plan you can handle.
4. You may want to explore a consolidated loan.  This is one large loan to pay off all your debts.  This payment on the new loan would be smaller than the total of the other monthly payments, BUT the total cost will be greater.  It is often easier to pay on only one debt.  There is however a danger of getting caught in a trap of over spending.

Before you decide to do this, you may want to take another step.  Go see a credit counselor.  Before you go to see the credit counselor you should figure out:

• How much money you have coming in on a regular basis.
• How much and what your fixed bills are, such as rent or house payments, insurance and debt payments.
• What your other expenses are, such as food, entertainment, clothing, and transportation.
• What your resources and plans are for emergencies.  These can include unexpected medical bills, large repairs, etc.

Fill out the weekly charts to help to answer these questions.

WEEKLY, MONTHLY AND REGULAR EXPENSES
FOOD		TRANSPORTATION
Supermarket Costs	_______________	Buses	_______________
(toothpaste, toilet paper,		Commuting	_______________
etc.)		Subways, taxis	_______________
Foods	_______________	Gas for car	_______________
(meat, fish, vegs,		Parking costs	_______________
dairy, desserts)		Maintenance and repairs	_______________
HELP		PERSONAL CARE
Babysitter	_______________	Beauty shop	_______________
Day care	_______________	Barber	_______________
Household help	_______________	Personal Items	_______________
Yard help	_______________	Laundry	_______________
Handyman	_______________	Clothing	_______________
Exterminator	_______________	CHILDREN
HOUSEHOLD		Allowances	_______________
1st mortgage pmts	_______________	Lunches	_______________
2nd mortgage pmts	_______________	Entertainment	_______________
Taxes	_______________	Transportation	_______________
Rent	_______________	CARE OF ELDERLY
Water	_______________	Rent	_______________
Sewer	_______________	Nursing Home	_______________
Gas	_______________	Medical/Dental	_______________
Electricity	_______________	Medicines	_______________
Telephones	_______________	MEDICAL AND DENTAL
Cable -- TV	_______________	Insurance pmts	_______________
Home Insurance	_______________	Expenses Yours	_______________
LOANS		Expenses Spouse's	_______________
Bank	_______________	Expenses Children	_______________
Credit Union	_______________	ENTERTAINMENT
College loans	_______________	Meals out	_______________
Credit cards	_______________	Parties	_______________
Car payments	_______________	Sports	_______________
Appliances and Furniture	_______________	Movies	_______________
Other	_______________	Vacations	_______________
		Other	_______________
EDUCATION
Books	_______________	To figure out yearly costs, multiply monthly costs
Tuition	_______________	by 12 and weekly costs by 52.
Magazines	_______________
Newspapers	_______________
Other	_______________
TOTAL EXPENDITURES	_______________

Take the income and expense forms with you when you go to the credit counselor.  When you know what you are able to pay on the bills, talk to your creditors.  Tell them you want to make smaller payments and pay over a longer period of time.  Most of them will try to help you out if you show that you are sincere and willing to pay.  Remember, though, taking longer to pay will usually cost more in finance charges.

BE SURE to get any new agreement in writing.  Then stick to the agreements.

WHAT IS A CREDIT COUNSELOR?

A credit counseling service helps people work out a plan for getting out of debt.  A credit counselor will help you look at  your money problems and suggest ways to improve your money management.

Some counselors will help you work out a repayment plan and contact your creditors.  You will pay the counselor a monthly payment, and the counselor will use that money to make your credit payments.  Non-profit Consumer Credit Counseling Services provide this service.  Agreements are made with your creditors.  They will allow you to pay off the loan in smaller payments. 

WHERE TO GO

Financial counseling may be available from:

• Churches and volunteer groups
• Banks and savings and loan associations.
• Credit unions
• National Foundation for Consumer Credit (www.nfcc.org or call toll free 1-800-388-2227.)
• County Extension Agent University of Florida Extension

WHAT CAN CONSUMER COUNSELORS DO?

Consumer counselors can help you with one or more of the following:

• Help you draw up a money management plan.
• Advise you on working with creditors.
• Give you information to help you plan your expenses.
• Some counselors will serve as a go-between with your creditors.

Some counseling centers may make payments for you from the money that you send them every month.

WHAT YOU MUST DO?

• Agree not to take on any more debts.
• Go by the plan that you and the credit counselor draft.

Caution:  Please note that if you fail to follow through, the program will be stopped, and creditors may begin to take legal action.

BEFORE YOU GO TO A CREDIT COUNSELOR

Before using the credit counseling service, be sure you know:

• Who is backing the program
• What, if any, charges you must pay.
• How the program operates.
• What exactly the counselor will be doing.

IF ALL ELSE FAILS

If you have tried everything else and finally decided to file bankruptcy, WAIT.  GET A LAWYER.  The Wage Earner Plan, Chapter 13 of the U.S. Bankruptcy Act, might be a solution to your problem.  If you own a house, car, and other assets, you can keep them under Chapter 13.  You will pay off your debts under a plan developed by  you and your lawyer, and  approved by the court.  Creditors will not be able to bother you as long as you stay with the plan.

FINAL OUT

If the Chapter 13 also fails, then filing for straight bankruptcy is your legal release from your debts.  This is not an easy way out, but a last resort.  When filing for bankruptcy:

• Get a lawyer.
• You are giving up some of your assets in return for being legally released from your debts.
• Certain assets cannot be taken from you.  Social Security and Veterans' benefits are not given up in bankruptcy.
• Also certain debts are not taken away, such as taxes, college loans, alimony, and child support.

Bankruptcy remains a part of your credit file for up to 10 years.  Bankruptcy is a court action and as such remains in court records forever.  Court records are public documents.  Going bankrupt can hurt you when you try to get credit in the future.  It can also keep you from getting some jobs.  This is why going bankrupt should only be done as a last resort.