What happens when you can’t pay your monthly bills? Keeping up with them 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 to cover the gap financially, 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 options you may have for getting financial relief.

Key Takeaways

  • Falling behind or missing bill payments can lead to late fees, credit score damage, and other negative financial consequences.
  • Federal government programs can assist if you’re struggling with mortgage or student loan payments.
  • Credit card companies can also offer financial help for cardholders who can’t make their minimum payments.
  • When taking advantage of relief programs, consider the long-term financial impacts of doing so.

Many Americans Struggle With Paying Bills

While not ideal, being unable to pay bills is a situation that many Americans find themselves in from time to time. Approximately 56% of Americans live paycheck to paycheck, according to a March 2021 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. An estimated 10% of Americans fell behind on bills as a result of the pandemic; 65% of those who fell behind said it would take at least six months to get caught up.

Emergency funds can help with managing bill payments when incomes decline or dry up completely. Unfortunately, according to Federal Reserve data from 2019, about one-third of Americans couldn’t 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 more difficult to be 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

Ideally, 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 a 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. These measures can provide some temporary relief until you’re able to make your normal payments again.

If your state issued a moratorium on utility disconnects related to the pandemic, it’s important to be aware of when that expires to avoid service interruptions.

When You Can’t Pay Credit Card Bills

Credit cards can be convenient for covering expenses when you’re struggling with a loss of income. While total credit card debt declined in 2020, Americans still ended the year owing a collective $756 billion in credit card balances.

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:

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% annual percentage rate (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. The federal Coronavirus Aid, Relief, and Economic Security (CARES) Act introduced temporary student loan forbearance for federal loans, which has been extended through Jan. 31, 2022. During this time period, you’re not obligated to make any payments toward your eligible federal loans, and no interest will accrue.

However, as these protections have an end date, it’s important to consider how you’ll manage payments going forward. 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 continue pausing payments temporarily.

If you have private student loans, you’ll need to talk to your lender about what help may be available when you’re unable to 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.

CARES Act protections allow you to count any missed payments during the forbearance period toward Public Service Loan Forgiveness credits.

When You Can’t Pay Rent

Being unable to make rent payments can put you at risk for eviction. This process takes time, however, and requires landlords to seek legal action to have you removed from the property that you’re renting.

A pandemic-related moratorium on evictions has been extended numerous times since it began with the CARES Act. However, on August 26, 2021, the Supreme Court rejected the CDC's latest request to extend the moratorium to Oct. 3, 2021.

However, there is still help available. Renters in need of assistance should consult the National Low Income Housing Coalition’s website, which provides a searchable list of all the programs currently available.

Finally, 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

The federal CARES Act included provisions for mortgage forbearance for eligible homeowners. Under these protections, it’s possible to qualify for a temporary suspension of payments for up to one year and avoid fees, penalties, and interest accruing on the loan. The deadline for requesting this help is Sept. 30, 2021.

If you aren’t eligible for federal pandemic-related assistance, then your mortgage lender may be able to 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 it 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.

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 bills—then it’s important to be proactive rather than avoid the situation. By staying in touch with your billers and knowing the options you have for managing payments, you can avoid the worst financial impacts.