My question came from Vicki in Philadelphia who asked:
I was able to pay my bills with my unemployment check and a part-time job. Now, I have exhausted all of my unemployment benefits and my only income is the part-time job which is not enough money to pay all of my bills. I have a mortgage, credit cards and high utility bills because I live in the northeast and we’re in the winter season. My part-time job cannot cover the mortgage. I tried to refinance to a lower mortgage rate (I have excellent credit) but could not because I don’t have a “job.” Something has to give. So which bill should I let become delinquent first?
I ate up quite a bit of time answering Vicki’s question, as you can see in the clip. I just didn’t want to give her an easy out and let her bills slide. Instead I first want her to try to exhaust as many free resources both online and offline to get her some help with day-to-day-expenses. Here’s the outline of my plan for Vicki and likely many people at home who are struggling with a lack of income and far too many monthly expenses at the moment:
1. Contact a Local Credit Counseling Agency. What many people don’t realize is that these agencies are often tied into local social service organizations that may be able to offer assistance with things like food and utility bills, says Credit.com‘s own Gerri Detweiler. And if the counseling agency is HUD approved, they can possibly help Vicki with her mortgage. You can find a local agency through the National Foundation for Credit Counseling.
2. Check Out the Unemployment Lifeline. This is a free service that can, like the credit counseling service, connect you with social service agencies within the community that offer help paying for utilities, groceries, health care, you name it.
3. Call Your Mortgage Lender. While Vicki may not qualify for a traditional refinancing due to her lack of income, she may qualify for a modification of her loan through the Home Affordable Modification Program. If her mortgage, interest and taxes adds up to more than 31% of her monthly gross income, she may very well be eligible for this federal program.
4. Call Your Credit Card and Utility Company. Because Vicki lost income she may be eligible for a hardship program offered by many card and service companies. When a friend of mine lost her job last year she called her insurance companies, utility firms, cable company, and others to try to negotiate lower rates. She was pretty successful in many cases. Be honest about your circumstances. You may be able to pre-emptively get what you need without having to go delinquent on your bills.
5. If All Else Fails…Sideline Your Credit Card Payments. As far as letting bills slide, the credit card bills are probably the first she’d want to stop paying. Even though her credit will suffer, and the card companies will start calling, it is unlikely anything dire will happen in the short term, says Detweiler. Her interest rates will skyrocket when she goes into default after 60 days delinquency and her credit will suffer. But credit cards are unsecured loans, so no one’s going to take her house or turn off her heat if she doesn’t pay them back.