When You’re Unemployed and Getting Behind on Bills

by Gary Foreman

We explore your options when you’ve lost your job and the bills are piling up. These steps will get you started on the road to recovery.

Gary,
My husband has been out of work for five months and the income he did bring in when he was working was double what I currently bring in. Needless to say, my checks and the unemployment is not paying the bills. I am starting to panic because bill collectors are calling daily. I cannot tell them when I can make payments so they continuously call at home and work. I feel like I am going to lose my mind because of this!

I am making sure that my house payment, utilities, and car insurance are paid, but everything else is getting severely behind. What do I do? Do we have any way of getting out of this mess? Any rights?
SS in WA

Sounds like you’re in a tight spot, SS. I’ll spare you the obvious advice of cutting nonessential costs. Let’s rather focus on how to handle the mountain of bills.

Stop the Debt Collector Calls

First, it’s important to get some breathing room. You won’t make good decisions if you’re losing her mind!

Begin by asking the collection agencies to stop calling you. Do it in writing. Use a postal method that proves that your correspondence was received. Bill collectors are required by federal law to stop calling you if you ask them.

Be Realistic About New Job Prospects

Second, estimate how long the situation will last. Are you looking for a one-month solution? Or one that will work for one year?

Estimating will mean honestly evaluating job prospects. Is it realistic for the unemployed spouse to find a similar paying job in your community? If not, you’ll need to make some decisions.

Would you be willing to move to another area and give up your job to replace your spouse’s lost income? In any case, you’ll need some estimate of when income should increase.

This may be a good time to evaluate a change in career paths. Sometimes happiness is found in a lower paying, but less stressful career.

Start Reducing or Eliminating Bills

Third, you will want to inventory your bills. How much does it cost each month for the basic necessities? Thankfully, it appears SS’s current income covers the basics.

Look at your bills with an eye towards reducing or eliminating them. Start with the biggest ones: the mortgage and any car payments.

Use credit insurance if you have it

Check to see if you have credit insurance on any of your credit cards that could cover payments until both you and your spouse is employed again. Many consumers forget that they even have it. A simple call to your creditor can tell.

Consider refinancing your home

Find out if refinancing your home is possible. Not for a lower rate of interest, but to stretch out the term of the loan. The longer the loan, the lower the monthly payment.

This could prove difficult if your bill paying problems have negatively affected your credit score. But it doesn’t hurt to ask.

Refinance your auto loans…

Try to negotiate a new loan on your car. Either your current lender or another may be willing to allow you to finance the car over a longer period of time.

…or get rid of a car

You may find that it’s best to either sell or even let one car be voluntarily repossessed. Repossession could leave you owing money after the car is sold, but at least the monthly payments and cost of insurance would disappear. (See Could You Give Up Your Car?)

If You Still Can’t Pay All of Your Bills

Now on to the smaller monthly bills. Make a list of all bills with the monthly minimums and the interest rate being charged.

Contact the people to whom you owe money. Begin with the biggest bills. Explain the circumstances and offer to pay what you can. Before you contact them, know how much you can realistically afford to pay each month. Do not make promises that you won’t be able to keep.

1. Leave some bills unpaid

You may find that even after talking to your creditors that you can’t cover all the monthly minimums. This leaves you with a few choices. One, pay some minimums and let other accounts go unpaid until after both spouses return to work.

2. Contact a debt management firm

A second option would be to work with a debt management firm. Often they can get creditors to reduce minimums and interest rates. Usually late fees will be waived.

Talk to a couple of companies before choosing one. Ask them to explain what they can do for you and what you’ll be charged for the service.

3. Declare bankruptcy

A final option is to declare bankruptcy. If job prospects are poor and you simply can’t keep up with the minimum payments, a bankruptcy could be inevitable.

All of these choices will leave marks on your credit history. That can’t be helped when you fail to pay bills. It may take up to 10 years before your record is completely clean. But the road to recovery will begin as soon as you take control of the situation and begin making payments at an agreed rate.

Let’s all hope that SS’s husband finds a great job real soon.

• Bare Bones Budgeting To Make It on Little Income
• When Your Employer Cuts Your Pay
• 12 Ways To Cut Spending to the Bone
• The Right Steps to Take To Rebuild Your Credit Score
• Avoid These 8 Mistakes When Filing Bankruptcy

Reviewed July 2023

About the Author

Gary Foreman is the former owner and editor of The Dollar Stretcher. He's the author of How to Conquer Debt No Matter How Much You Have and has been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com.