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My bills are more than my income – what should I do?

Whether payday has been delayed, your income is skinnier than expected, or you find yourself facing unexpected bills, you’re probably asking questions like, “Which should I pay first: my car insurance or mortgage? How will I pay for my kids’ hobbies?” Before you start to panic, take a deep breath and keep reading – below we’ve outlined a series of steps you need to take as soon as possible.

Cash flow can be a real challenge, and that’s why it’s important to have a personal budget to make sure you meet your personal financial commitments. But what happens when bills are out of control and there’s not enough income to cover your expenses? MyBudget director and founder Tammy Barton shares her advice for what to do when you are overwhelmed with bills.

Whether payday has been delayed, your income is skinnier than expected, or you find yourself facing unexpected bills, you’re probably asking questions like, “Which should I pay first: my car insurance or mortgage? How will I pay for my kids’ hobbies?” Before you start to panic, take a deep breath and keep reading – below we’ve outlined a series of steps you need to take as soon as possible.

Start by protecting your credit rating

If you’re wondering what to do when you are overwhelmed with bills, reducing your debt is a good place to start. When asked to prioritise their bills and debts, most people say that their mortgage is their top priority. That’s a good call. Lenders often issue default notices after mortgage payments have been missed for three consecutive months.

But many people don’t realise that other creditors (telephone companies, credit card providers, rental agencies etc.) also report defaults when bills are paid late. In fact, some creditors are more likely to report a default than a financial institution.

You want to avoid default notices on your credit file — they can result in you being refused credit or missing out on discounted interest rates.

Credit cards are not the answer

When money gets tight and your bills are more than your income, the solution for many people is to use their credit card to make ends meet, but that strategy is fraught with danger. If you can’t pay your credit card balance in full at the end of each month, interest will be added to the amount you owe — the last thing you need when your finances are already stretched.

A fanned stack of different credit cards

Aside from being one of the top causes of financial stress, credit card debt can hold you back from living the life you want. Credit card debt can limit your options and lead to a snowballing effect, where you’re focussing on credit card repayments on top of trying to sort out all your other bills too! If you’re trying to regain control of your bills, then avoid the temptation to use credit cards as a “get out of jail free” card.

Download our free eBook now to learn more about reducing credit card debt

Take back control of your bills

Even with fluctuating income, it’s possible to go from bills that are out of control to managing your money confidently, without needing a credit card or other loans to fall back on. If your bills are more than your income, these five steps will point you towards financial freedom:

1. Take action — now!

If you need help with paying bills then don’t hide your head in the sand. Financial problems have a habit of escalating, especially when late fees, penalties and reconnection costs are involved. The worst thing you can do is ignore the problem. If your car is going to be repossessed or your electricity cut off, you want to know about it!

Also keep in mind there’s only so much information you can read and absorb before you reach the point where taking action is more important to regain control of your finances. When your bills are out of control there’s no “one thing” you need to do, instead, you just need to make a start.

2. Create a personal budget

If you’re stuck and don’t know what to do when you are overwhelmed with bills, then creating a budget is a good place to start. A long-range budget will show you where your money is going and help you take control of your finances. Managing your income is particularly important if your income fluctuates. Having a budget in place will also help you if you need to talk to your creditors about setting up an affordable payment plan.

As you look at your budget, identify areas to cut costs. Many people are surprised by how much money they spend on unnecessary things (coffee, lunches, clothes, magazines, snacks and gadgets etc.). Look for big savings in areas like transportation, accommodation, mobile telephone, pay TV, entertainment and eating out. Lots of little savings can add up to become big savings in the long-run!

3. Prioritise your bills

If your bills are more than your income, then paying them off needs to be at the top of your to-do-list. Ask yourself: What are the most important bills to pay first? What are the consequences of not paying a bill? For instance, most people understand that it’s better to surrender a rental TV than, say, let their home insurance lapse. But it’s easy to become confused about your priorities when creditors are chasing you for payment.

Also think about ways to save money on household bills and potentially cut thousands of dollars from your household expenses. If you haven’t compared lenders recently, you should. MyBudget Loans may be able to look into your circumstances and see if there is a better deal and how much you can save.

Shop around and look at ways of saving on things like power deals and phone bills, while also focusing on paying off the most important bills first.

4. Contact your creditors

As soon as you know that you won’t be able to make a payment on time, call the creditor and explain your situation. If your bills are out of control and you need help with paying bills then be as honest as possible. Speaking with your creditors will help you understand any alternative options you may have as well.

If you’ve followed the steps in this article, then you’ll also be armed with your personal budget, meaning you’ll be able to propose an alternative payment plan. Most creditors are happy to provide a short payment extension. Some will even grant you a moratorium (a payment holiday) while you get back on your feet. Also ask about the company’s financial hardship policy to see if there’s any other flexibility with your payments.

The earlier you acknowledge that your bills are getting out of control, the more you’ll know about the options available to you and the better chance you’ll have of avoiding bankruptcy and other insolvency options.

5. Seek help

Still unsure of what to do when you are overwhelmed with bills? We don’t want you to feel stuck thinking “My bills are more than my income – what should I do?”. Instead, we want you to feel empowered and on top of your money.

Sometimes a fresh set of eyes will help you to see your finances from a new perspective. Good money management always comes back to budgeting and the team at MyBudget would love to help.

If your bills are out of control and you’re ready to make a positive change to your money management and live with greater financial confidence, then get in touch with a MyBudget team member today.

Call 1300 300 922 for a quick chat with one of our friendly money coaches and to book your free budget consultation or enquire online.

Ready to find out more?

Call 1300 300 922 or get started today

This article has been prepared for information purposes only, and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information in this article you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.

All customised budgets and consultations with money experts are subject to MyBudget’s qualification criteria. We recommend that you read and consider our Product Disclosure Statement.

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