For most people in Southwest Louisiana, the past 18 months have been extremely challenging due to the impact of the COVID-19 pandemic and several natural disasters affecting all aspects of daily life, including, in some cases, employment and income.
In a perfect world, we could pay all our bills in full and on time. Unfortunately, real life offers few guarantees, especially when it comes to personal finances. When that happens, the growing stack of unpaid bills can seem overwhelming. Add in extra fees for late or missed payments, and it’s to start feeling hopeless.
“There is always hope,” says Kala Kuhlthau, Vice President and Sulphur Branch Manager with Lakeside Bank. “When your bills exceed the money you have to pay them, it’s not time to throw in the towel and give up; it’s time to sit down with all your expenses and organize your financial priorities.”
She says you have a legal obligation to pay the debts you owe, but if you’re in a situation where that may not be possible, there are things to do to make your limited payments as effective as possible.
First, make a list of everyone you owe and how much you owe them. Then consider the consequences of nonpayment for each. “Obviously your top priority should be those expenses that would affect the family most,” says Kuhlthau “More than likely, the first expenses you’ll want to pay will be the mortgage, utilities and medical insurance.”
When faced with credit card bills, the most effective way to prioritize is by interest rate, according to Kuhlthau. It’s usually best to pay on cards with higher interest rates to reduce the amount of finance charges. “Be sure to avoid making new charges on those cards if at all possible. Otherwise, you will be digging yourself into an even deeper hole.”
Once you have determined a payment plan — even if it’s a limited one — make sure to contact all creditors who will be adversely affected. Explain your family’s situation and ask them to work with you on a restructured payment plan, if possible, to protect your credit score.
“Most creditors will work with consumers to get the debt repaid,” says Kuhlthau. This could include an extended payment period or reduction in the interest rate. Some creditors even allow consumers to skip a payment and tack it on the end of the loan. “These decisions often depend on previous payment history and a consumer’s credit score,” she adds. “Even if creditors find that their hands are tied and there are few alternatives available, it’s still a wise idea to talk to them, explain your situation and let them know the status of their payment.”
Also, make sure you understand the consequences of reduced payment or nonpayment to the agencies you owe. “That way, you can be prepared for any negative consequences,” says Kuhlthau. “You can also put a plan in place to start rebuilding your credit once your financial situation improves.”