We all fall behind some times. Bills never stop coming, expenses add up, and emergencies can derail even the most responsible money managers.
But there is a big difference between having a setback that you recover from and wallowing in a problem that only keeps getting worse. By now, if you’re behind on some bills, you’ve probably already realized that you have a financial issue. Hopefully it can be fixed without major damage. But you have already taken a good first step by even admitting that you’re in a bad situation.
Now, how do you solve it? Well, that will depend upon the nature of the problem. But there are three key steps that roughly fall into the following categories: diagnosis, finding a cure, and triaging the current situation. It will be hard to fix anything overnight, but implementing these three strategies will put you back on the right path.
1. Do the Math and Analyze Your Budget
When you’re overwhelmed, it’s hard to think about anything beyond making ends meet immediately. But, in most cases, financial problems come down to some pretty simple math. You either need to start spending less or start making more. The first side of that equation is what most people worry about. And if you are buying things you cannot afford, you should be able to recognize that and fix it. Knock it off!
But to really figure out the math, you need to start with a budget. How much are you bringing in each month and how much is going out? Is the issue a one-time, recent setback (like a car accident, health incident, or legal problem)? Or is this an every-month problem where you continually have nothing left over? If it’s the latter, is there a relatively obvious solution? Is your mortgage, rent, or car payment just way too high? Can you move or downgrade in transportation and make things even out?
2. Think About Your Income Long Term
If you have already ruled out any fixes to these big ticket expenses, then your income might just be too low. You need to earn more. That may sound harsh, but once you look through the big monthly expenses and realize this isn’t a spending problem, cutting out some Starbucks or cancelling Netflix probably won’t actually solve your issue.
So your main strategy needs to be figuring out how to improve your income situation. That is definitely easier said than done. Unfortunately, however, the job you’re in or the the career path you’ve taken may just leave you forever in a low-earning situation. Unless you do something about it, your situation won’t change. So consider your options: What type of job would you want and could reasonably achieve five years from now?
It’s definitely hard to think so far ahead if things are nerve wracking today. But making more money might be the only good way to get back on track long term. Whether that is learning a new trade, going to school, or just moving to a new industry, there is probably some trajectory that could set you up for success in the future.
3. Dealing with the Current Hardship
Earning more sounds great to everyone. But how do you make it through the next six months? Or even the next few weeks?
The first step? Don’t panic. You don’t want to do anything rash, and it can be hard to stay level-headed when bills are piling up. Just remember: This is a math problem that you need to fix. Perhaps you’ve made some mistakes — or just had a little bad luck — but it doesn’t mean you are some sort of failure. It happens and you can get back on track.
Now is the time to consider your options to make things work for the here and now. While you never want to live off of debt, a credit card can help you manage the situation as you fix the underlying issues. You will need to only use it responsibly and to pay off any existing, urgent bills.
There is little benefit in trading one problem for another in the form of more debt plus interest. But taking care of utilities, a car payment, or even rent immediately is obviously high priority. As long as you see credit as a useful tool rather than a way to fund an unsustainable lifestyle, getting a new card can prove to be a good move and help you weather the storm.
Getting Yourself Back on Track
There is often no easy fix to financial issues. You likely didn’t arrive here overnight and you won’t solve it all before the week is out either. But there is a way out.
It will take a bit of discipline and being realistic about your budget. It will take a long-term plan to up your income. And you may have to take some immediate action with useful financial tools like credit cards.
It would be even better if these strategies paid off immediately. But they will work if you commit to it and stay on the right path. You can get back on track — just start moving forward smartly.