Keeping up with your monthly bills 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 cover the financial gap, 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 other options you may have for getting financial relief.
Key Takeaways
- Falling behind on or missing bill payments can lead to late fees, credit score damage, and other negative financial consequences.
- Federal government programs can help if you’re struggling with mortgage or student loan payments.
- Credit card companies can also offer financial assistance for cardholders who can’t make their minimum payments.
Many Americans Struggle With Bill Payments
While not ideal, being unable to pay bills is a situation that many Americans find themselves in. Approximately 78% of Americans live paycheck to paycheck, according to a September 2023 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. As inflation soared even after the pandemic, many Americans fell behind on their bills, especially utilities. In January 2024, the National Energy Assistance Directors Association reported that more than 16% of all American households were behind on their energy bills in 2023.
Emergency funds can help with managing bill payments when incomes decline or dry up completely. Unfortunately, according to Federal Reserve data from 2022, only two-thirds of Americans could pay for a $400 emergency in cash.
Most states offer 26 weeks of unemployment benefits, though you may be eligible for up to 20 weeks of additional extended unemployment benefits depending on where you live.
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 harder to get approved for new loans or lines of credit. A creditor lawsuit could lead to wage garnishments, bank account garnishments, or property liens.
Even though some billers, such as utility companies, may not report late payments to the credit bureaus, you can still be charged late fees until your account is current.
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:
- Receiving emergency assistance through the federal Low Income Home Energy Assistance Program (LIHEAP)
- Negotiating a payment plan that allows you to make up any arrears you owe
- Receiving waivers for late-payment fees
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 income is lost. In Q4 of 2023, Americans owed a collective $1.13 trillion in credit card balances, which increased by $50 billion in a single quarter.
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:
- Temporary fee waivers
- Interest rate reductions
- Suspension of a penalty annual percentage rate (APR)
- Monthly payment reductions
- Suspension of negative reporting to credit bureaus
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.
If you’re currently taking advantage of any 0% APR promotions on one or more of your credit cards, missing a payment could trigger a significantly higher penalty APR.
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. After the Supreme Court overturned the Biden Administration's student loan forgiveness initiative, the White House announced alternative routes to provide debt relief.
The new Saving on a Valuable Education (SAVE) plan reduces the burden for student loan borrowers. Now that payments have resumed, student loans are once again accruing interest. However, under the SAVE plan, if a borrower's full payment isn't enough to cover the accrued interest, the government will cover the rest of the interest that month. This is an effort to prevent unpaid interest from raising balances further.
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 pause payments temporarily.
If you have private student loans, you’ll need to talk to your lender about what help may be available when you cannot 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 of eviction. This process takes time, however, and requires landlords to seek legal action to have you removed from the property that you’re renting.
Renters in need of assistance should consult the National Low Income Housing Coalition’s website, whichprovides a searchable listof all the programs currently available.
Additionally, 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
With federal pandemic aid having expired, your mortgage lender may offer forbearance or deferment of payments to you directly. It also may be able to help with restructuring your loan to make payments more affordable.
You’ll need to reach out to your lender to discuss possibilities for managing late payments. If your lender isn’t willing or able to help, then you may need to consider other options, such as refinancing the loan. However, refinancing can require a good credit score and steady income, so if you’ve experienced a job loss, then you may not qualify.
Other options that you may consider include:
- Selling the home
- Keeping the home but renting out part or all of it
- Negotiating a short sale
- Allowing foreclosure on the home
Selling the home can help you pay what’s owed to the lender and avoid foreclosure actions. Still, you’re taking a risk that the home will sell at your desired price point and that you’ll be able to walk away with enough cash to get set up in a new place to live.
If you would like to keep the home, then you could rent it out to bring in extra income. As this can have tax consequences, you should consider talking to a tax professional to determine whether this makes sense financially.
A short sale or foreclosure would allow you to walk away from the home. In the case of the former, the lender would agree to cancel out any remaining mortgage debt if the home sells for less than what’s owed. Foreclosure would not, though the mortgage lender may forgive any remaining balance. Both can be damaging to your credit, so it’s worth exploring other options first.
If you’re thinking of refinancing your mortgage, be sure to compare the available mortgage rates before choosing a lender.
What to Do When You Can't Pay Your Bills?
If you can't pay your bills, the first course of action is to contact your lender, whether this is your credit card company, mortgage lender, or another debt provider. Speaking with your lender before getting behind on your bills will put you on a better footing to possibly reach a solution with them to ease your financial burden, whether that be an agreement on lower monthly payments, deferred payments, or other options.
What Is the Best Way to Get Out of Debt?
Some steps to take to get out of debt include paying more than your monthly minimum, refinancing your debt for a possible lower interest rate, creating a budget, trying strategies like the debt snowball, cutting expenses, and not taking on new debt.
How Much Debt Is too Much?
Too much debt is generally considered to be a debt-to-income (DTI) ratio of higher than 43%. A good DTI ratio is considered to be 36% or less.
The Bottom Line
Falling behind on bills may not be pleasant, but it can and does happen. If you’re on the verge of getting behind—or if you’re already late on your bills—then it’s important to be proactive. By staying in touch with your billers and knowing the options you have for managing payments, you can avoid the worst financial consequences.
