Today we will tackle a financial nightmare. What to do when you can’t pay your bills.
Some of the suggestions in this post aren’t reasonable for managing your finances in normal circumstances. But we’re dealing with extraordinary circumstances.
Cut Your Spending to the Bone
There are only two ways out of your predicament: Spend less or earn more.
You should be thinking about employing both.
Let’s start with cutting spending.
Move somewhere cheaper
The problem is that you can’t pay your bills. Chances are your rent or mortgage is your biggest bill. Let’s try to make it smaller.
The best way to do this is to find somewhere cheaper to live.
It doesn’t have to be forever. Just until you can get back on your feet.
Based on the terms of your mortgage or lease, this might not be an immediately viable option. But if it is, you should do it.
Get a roommate
If you can’t move, get a roommate.
Maybe you like living alone. Maybe you value privacy and personal space. Sorry, but you can enjoy those things once you can support yourself better financially.
For now, you need help offsetting your biggest expense, and having someone pay you rent is a great way to do this.
This strategy is sometimes known as house hacking, and it’s an incredibly creative and effective way to make your biggest expense a little more manageable.
Slash your recurring expenses
Essentially, you’ll be doing the Quick Wins Project that I advocate, but you’ll be merciless.
Netflix has to go.
Spotify has to go.
You can keep your phone, but switch to the cheapest plan imaginable.
The only recurring expenses you should keep are the ones that are necessary. And even then you should make sure you’re getting the best possible price.
The only difference here is that usually I advocated paying for several months up front to pay less overall. However, when your financial situation is in the toilet, you don’t have that luxury. You need to err on the side of making your monthly expenses smaller at every turn.
Eat Rice and Beans
Do I advocate that everyone out there eat rice and beans to be frugal? No.
But if your back is up against the wall, is it a good idea to switch to mostly eating rice and beans to save money for a while? Yes.
Or, if you don’t want to do that, you should at least brush up on the math behind why cooking is so much cheaper than eating out.
If you have any late fees on your credit card or overdraft fees on your bank, you should call to try and get them waived.
And while you’re at it, switch from your garbage bank to a bank that doesn’t charge overdraft fees like Ally. I’ve used Ally for years and I’m extremely happy from them.
There’s some good tips and scripts for negotiating with credit card companies in Ramit Sethi’s I Will Teach You to be Rich, a book I definitely recommend reading.
Find Extra Income
There are two forms of income gains you should be thinking about:
- Short term
- Long term
You need to think about getting paid quick because you have a financial crisis on your hands. But you also need longer term sustainable gains in income to help keep you from getting into this mess again.
Sell Your Car
Obviously this trick only works once. But if you need cash and have a way of getting by without it, this can work.
This has the added benefit of reducing many other expenses like car insurance.
Ask For Help
Seriously. Just ask for help. Help can mean direct financial assistance, or it can mean someone hiring you or referring you to do some work.
Look Into Government Assistance
If you’re eligible, you should absolutely apply for whatever assistance is offered. Just do it with the mindset that it’s your duty as a citizen to get off the dole as quickly as possible.
I’m not the type to judge people for needing government assistance. I myself was for a brief stint during the great recession just after I graduated. But I do support judging yourself for needing handouts and trying to move on as quickly as possible.
But if you need it, apply.
Get a Second Job
Second jobs suck, but you need to work your way out of this mess that you’re in. There are no magic wands or quick fixes. You have to do the work.
The only thing to keep in mind here is that it can take 2-3 weeks to get your first paycheck from a new job.
Depending on how quickly you need cash, it might be worth trying to find some gigs where you can get paid cash under the table.
And of course, if you don’t have a first job, you’ve identified your single biggest problem.
Play the long game
Once you fix you short term cash flow problems, it’s time to start thinking about increasing your income in the long term.
Life can be stressful when you don’t have enough to pay your bills. The good news is you’ll be able to breathe much easier once you dig yourself out of the hole.
Once you get back on your feet and are spending less than you earn, you should strongly consider building an emergency fund to get out ahead of this problem in case it ever happens again