How to Budget When You Are Already Behind on Bill Payments

Are you struggling to get ahead when you’re behind on bill payments? You’re not alone. 

A recent survey found that 54% of Canadians are living paycheck-to-paycheck. Another report showed that 64% of Americans are as well. In fact, more than half of six-figure income earners said they were stretched too thin. 

It doesn’t have to be that way! You can take steps today that will help get you back on track. Others who have been in the same or similar situations, and have used resources, planning, and intentionality to gain control of their finances, have got themselves out from underneath the weight of being behind on their payments. With these practical steps, soon you’ll be able to share your success story to encourage others!

Make a spending plan (budget)

The first step you can and should take, if you haven’t already, is to make a spending plan for your money. Start by making a list of all your income; that’s any money you are receiving - paycheck, government assistance, money from selling things, investment dividends. You name it. If it is money coming your way, it’s income. Then list all of your expenses - including any fixed expenses, like mortgage/rent, insurance, car payments, and savings contributions, and any variable expenses, like groceries, fuel, and utility bills. Anywhere you have money outgoing.

When you are building your spending plan, the goal is to get to a zero-based budget, where your income minus your expenses (that includes any savings) equals zero. If your bottom line isn’t zero, you can go back and find ways to spend less or make more (more on that below).

Making a plan for your money allows you to make sure it is doing what you want it to, and not leaving you wondering what happened to it all.

Build a starter emergency fund

A starter emergency fund is smaller than a fully funded emergency fund and provides security for you while you are getting caught up on your bill payments or out of debt. A starter emergency fund should be around $1,000. It is enough to cover unexpected expenses that might come up, like car repairs or medical bills, so that you don’t have to go further into debt. Some people feel more comfortable with a starter emergency fund that is one month of expenses, however, that may feel like too much for others. You need to decide which is best for you and your situation.

If you are already behind on your bills, saving $1,000 might seem impossible, but following the first step (making a spending plan) will help you find room to save money. While you are building this starter emergency fund, you should just be making minimum payments on your debts until you have your starter emergency fund goal amount set aside. Once you have your starter emergency fund, then go back to more aggressively paying down debt.

Set a plan for paying down debt

Start by making a list of who you owe money to (this includes personal debts to family or friends), how much you owe, and when it is due. Perhaps you’ve been avoiding thinking about this list in detail because you find it overwhelming. That’s okay! You’re moving forward from today. Knowing exactly how much you owe and to whom will allow you to make a successful debt repayment plan. You’ve got this!

Once you know everyone you owe and how much, then you can make a plan for how you will pay down each debt. By making minimum payments on all of your debts, and putting everything extra toward one, you can start knocking debts off your list as opposed to letting them all hang around longer while you equally divide your payments among them.

On debts where you are behind, call your creditors. Some financial institutions can offer you repayment plans. If you are 90 days or more late on your payments, you may have the option to settle your debt with the lender.

Stop using debt

You might be thinking in your head, “Did she really just say that? She doesn’t know my situation. I can’t!” Stop telling yourself that narrative. You can! 

The idea of spending less than we make is a foreign concept to many. It doesn’t need to be foreign to you. It’s called living within your means.

Some simple steps to avoid using debt are to leave your credit cards at home, remove them from online payment systems or entirely stop shopping online. Additionally, consider using cash instead of plastic when at the checkout. For decades studies have proven that we spend less when we use cash instead of credit or debit cards.

It may not happen overnight. It may even require some of those phone calls to your creditors, but you can do it. Believe in yourself!

Make extra payments toward your debts

Once you have a starter emergency fund, start making extra payments toward your debts. When you’re struggling to keep up with bill payments this one may seem too difficult, but continually making the minimum payments will keep you in debt longer, and cost you significant amounts in interest payments.

There are several different strategies for paying off debt efficiently. In all cases, extra payments toward the debts are what give this train momentum.

If you haven’t been able to make the minimum payments until this point, work on getting to the point where you can make minimum payments and then set goals to increase your debt payments.

Spend less

I always like to suggest this option first, before suggesting to make more money, because it usually takes less energy to spend less money than it does to make more.

The easiest way to spend less money is to look at your spending plan and find areas where you can reduce your costs. Some of the most common areas you can quickly save money are canceling subscriptions (instead of having Netflix, Prime, and Disney Plus, just drop to one television provider, or if you’re feeling ambitious, you can cut them all), inquiring if your insurance or phone provider can give you a better rate than you are already paying and order takeout less or not at all.

Take a look at where your money is going and find at least two or three areas where you can cut back your spending.

Make more

If you’re not into spending less, let’s talk about how to make more money. Making more money can allow you to get on track with your bills and put more toward debt repayments.

There are a few options you can consider when looking at ways to make more money: sell things you own but don’t need or use anymore, find a part-time job or ask for extra hours at your current place of employment, or maybe even start a side hustle.

The key to being impactful here is using your extra money to get caught up on bill payments and out of debt. Once you’ve broken up with debt, you can quit your extra income earner or keep it and use your extra income to have fun, save for your future and give generously.

Don’t give up

Whether you are just starting this journey for the first time, or you have tried before and failed, don’t get discouraged. Your biggest critic is yourself. If you make a mistake, fail to meet a goal, or find yourself unable to make the changes you set out to make, dust off your boots and keep going. It happens to all of us. The difference between those who succeed versus those who fail is that the successful got back up and kept going. They didn’t give up.

Don’t ignore your financial situation

Whether you’re struggling to make ends meet or just finding that you can’t get ahead, don’t stick your head in the sand. Oftentimes we think things are worse than they are so we don’t even want to look… kind of like when you hurt yourself. It seems really bad, then you look at your wound only to find out there isn’t even a scratch. Looking at your finances can often be freeing rather than restricting.

Or maybe it really is as bad as you thought it was… or even worse. It’s going to be okay. Implementing the strategies I’ve listed above is going to get you well on your way to getting things under control. You should also find a trustworthy friend, family member, or spouse to hold you accountable.

Now you’ve got a list of practical steps to get you moving in the right direction: start with creating a spending plan/budget, build a starter emergency fund, set a plan to pay down debt, stop using debt, make extra payments toward debt, spend less, make more, don’t give up and stop ignoring your financial situation.

This is a marathon, not a sprint. You need to build your financial muscles one step at a time. Don’t be afraid to ask for help. Find a community of people who are like-minded to support you and keep you motivated. Building a team of wealth partners like a financial coach, financial advisor, insurance professional, and Realtor will keep you on track and moving in the right direction. You’ve got this!

If you’re ready to set a strong foundation for your finances so that you can be confident in your money handling skills, find out how Membership or 1:1 Coaching can help you achieve financial success!