What is the Difference Between a Credit Report and a Credit Score?

Whether you are buying a home or looking for a quote on your auto insurance, chances are that someone is going to be checking your credit. Sometimes this means looking at your credit report, and sometimes it means looking at your credit score.

Sometimes it means looking at both.

It’s easy to get a little mixed up on the difference between a credit report and a credit score. Here are the basics of what to expect when your credit is considered:

The Credit Report

Your credit report is a history of your credit transactions. It is a compilation of the financial transactions you have made involving borrowing money. Your credit report includes information about your loans as well as information about which companies are making inquiries about your credit situation. Detailed information about your borrowing is shared including:

• Who gave you the loan.
• How long you have had the loan.
• The amount of the loan.
• The credit limit (for revolving credit).
• The payment history, including your monthly payment record for credit cards.
• Whether the loan has been paid off.

Additionally, when companies make hard inquiries into your credit, they show up on your credit report, indicating that you are applying for credit right now.

Your credit report might also include information about past and current employers (although this information doesn’t influence your score) as well as your name and aliases, and your current and past addresses. All of this information can be taken into account when making decisions.

Special versions of your credit report might be prepared for different purposes. For example, some employers might ask to look at your credit report. A version of your credit report showing certain information is supposed to be sent to your employer. Then, that information can be used to make a hiring decision. When you buy a home, your full credit history is likely to be combed over.

Credit Scores

Unlike a credit report, which spells out your entire credit history, a credit score is three numbers. However, the credit score is based on the information in your credit report. All of the information in your credit report is converted into a form that can be fed into a special algorithm. Different weights for different portions of your credit history are used. All of this information is plugged into a formula, and the result is your credit score.

There are different versions of your credit score, depending on what information is used. If your Equifax credit report is used, it might have different information from your TransUnion credit report, so your Equifax credit score will be different from your TransUnion score. The credit scoring giant FICO has a number of variations that it uses to emphasize different aspects of your credit report. Even individual banks sometimes have their own models.

Your credit score is a way to get an idea, at a glance, of your credit situation. It helps when making decisions about whether to approve you for a loan, and what terms you will receive if you are approved.

Credit scores are often used with car loans, since it makes it quick and easy to see what you qualify for. Others, like insurers, may use credit scores to get an overall idea of your level of responsibility and make a decision about your premium.

The main thing to remember is that your credit score is based on the information in your credit report. If you are careful with your credit report, you are more likely to have a higher credit score.

What other questions do you have about your credit score or credit report? Leave a comment!

This article was originally published October 29th, 2012.

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How to Negotiate Your Debt to Find Freedom

One of the most difficult situations to be in is that of someone who feels overwhelmed by debt. Indeed, you might have a great deal of debt – and be unable to pay it all off.

However, going to collections isn’t something that’s desirable, either. If you are in a tight spot, but have the ability to pay off some of your debt, you can negotiate with your creditors for a lower interest rate, repayment plan, or settlement.

What are the Possible Outcomes When You Negotiate Your Debt?

If you are trying to get rid of your debt, you can often negotiate different aspects of the terms if you are upfront and honest. Before you start, you need to have a plan. Get an idea of what you owe and who you owe it to. Also, get an idea of what sort of payments you can make, or if you can access enough cash to make a lump sum payment within 30 to 90 days.

Figure out what you want to accomplish with your negotiations with each creditor. Some of the more common possible outcomes include:

Interest Rate Reduction

You might be able to ask for a lower interest rate on your debt. This can help lower the payments to make them more manageable. Many credit cards will lower the interest rates if you are a reasonably good customer. If you are serious about it, many creditors are willing to drop your rate if it means you will make your payments and they will get a good portion of their money back.

Repayment Plan

If you are having trouble meeting your obligations with the current payment plan, you can ask for a new plan. Be prepared to present what you can pay each month. In some cases, you might be able to get a reduced monthly payment. Some creditors will even forgive some of the loan amount if you can make a reduced payment for the next three years or five years.

Settlement

Debt settlement is when your creditor agrees to accept a lower amount than what you owe, and consider the debt paid off. In debt settlement, you pay between 20 cents and 70 cents on the dollar. However, you usually need to pay a lump sum. This usually means that you should be prepared to get the cash together to pay the agreed settlement within three months.

Tips for Negotiating Your Debt with Creditors

The first rule of negotiating with creditors is that you need to try to be polite and honest . . . without going into great detail. Mention the basics of your situation: You have a great deal of debt. You can’t meet your obligations. You’d like to negotiate. If you have lost a job, or suffered a large financial setback (such as a family medical emergency), you can mention that.

One of the best times to begin negotiating is when you are about three months behind on your payments (unless you are negotiating for a better interest rate; then you should call while you are still up to date). The creditor probably hasn’t sent your account to collections, but there is the worry that you might be a bankruptcy risk. Call and let the creditor know that you would like to meet the obligation, but your financial situation doesn’t allow it. Present your plan.

The creditor might offer an alternative. You can ask for a day or two to think about it. Figure out if the counter offer is something you can handle. If it’s not, you can come back with another offer that meets the creditor halfway (as long as you can meet that obligation).

Once you do come to an agreement, make sure you get it in writing. Insist that you are sent a copy of the agreement so that you can see the terms of the new repayment plan or settlement. You should also take note of the names and titles of everyone you speak with, and take good notes about the conversation. This is information you will need in the future if something goes wrong.

You can negotiate your debt. However, you need to have a plan. And, if you are unsure about where to start, you can get help from a reputable agency by visiting the The National Foundation of Credit Counselors.

Have you had to negotiate your debt? Leave a comment and let us know how it went!

This article was originally published October 8th, 2012.

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5 Highly Ideal Jobs for Savvy Freelancers

One of the ways that you can make extra money on the side – or even make a good living – is to offer your services as a freelancer. I’ve been freelancing for several years now, and it is my family’s primary source of income.

Thanks to technology, it’s possible to make money as a freelancer from the comfort of your home, on your own schedule. Here are some highly ideal jobs for savvy freelancers:

1. Writing

As a freelance writer, I know the value of writing as a career. This is one of the easiest freelance careers to manage. You can usually do your writing on your own schedule, no matter how odd your hours are. From providing web content, to ghostwriting books for others, to creating press releases and ad copy, it’s possible to make money as a freelance writer.

Since so much of life these days relies on the written word, someone with a little skill in that area can go far as a freelancer.

2. Graphic Design

Are you a whiz at InDesign or PhotoShop? If so, you might be able to offer your skills as a freelance graphic designer.

From providing designs and images for web sites, to creating advertisements, there is little need for graphic designers to be in the office all the time. In my earlier life as a freelancer, I even did a little logo design and website button design.

Visuals are a big part of what we see today, whether it’s an ad in the newspaper, a flyer at the local library, or a website, the skills of a graphic designer are often in high demand.

3. Web and Software Development

I have a friend who works as a freelance software developer. He creates custom apps for companies. If you know how to code, there is no reason to sell yourself short for a salary at one company.

The same is true if you understand web development. Learn programming languages (or put the languages you already know to good use) and offer your services as a freelance developer. It’s possible to earn top rates if you are good at what you do.

4. Social Media Marketing

As someone who works in the online space, I know a lot of people who provide freelance marketing services geared toward social media. Many of these freelancers refer to themselves as consultants, but it basically amounts to the same thing.

If you know how to use social media to drive traffic to websites, and to convert social media into sales, you can offer your services on a freelance or consultant basis. With the tools out there for social media, this is a freelance job you can do on your own terms in many cases as well.

5. Virtual Assisting

It’s also possible for you to offer your freelance services as an administrative assistant. Many of the assistant jobs, from answering emails to scheduling phone interviews, can be done on a freelance basis. Keyword searches and research can also be done remotely by virtual assistants.

If you are organized and can provide a number of these services for busy business owners and entrepreneurs, there is a good chance that you could make money as a virtual assistant. Freelancing this way does have a drawback that the other jobs don’t have: You might end up having to work certain hours in order to be available during the business day.

What other jobs do you think are ideal for freelancing? Leave a comment!

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When Should You Start Paying Off Your Mortgage Early?

Paying off the home mortgage is a major goal for a lot of people. Once the mortgage is paid and the home is owned free and clear, all kinds of possibilities open up in both finances and in lifestyle. The largest expense in the household budget is gone, there’s more money for everything else and retirement is closer than ever.

With all the benefits it has, it would seem that paying off your mortgage as soon as possible should be a high priority. And that would be the case if there weren’t other financial goals that you might want to accomplish first.

Why Paying Off Your Mortgage Shouldn’t Be Top Priority

Paying off your mortgage early has tremendous benefits, no doubt about it. But for a few reasons, it doesn’t need to be a top priority.

Consider the following:

• Since mortgages have definite terms, even if you didn’t try to pay it off early, it would still go away. It may take 15 or 30 years depending on your term, but as long as you make your payments faithfully and don’t extend the term on refinance, it will disappear.
• If your mortgage is a fixed-rate loan, there’s no risk of the payment increasing.
• Since mortgage interest is tax-deductible, the effects of the payments are reduced.
• Paying down a mortgage provides no immediate benefit; the loan payment will remain fixed until the loan is paid in full no matter how much you pay it down along the way.

For these reasons, you might want to look at some other priorities first.

Build a Well-Stocked Emergency Fund

You shouldn’t even consider paying off your mortgage early unless you have a well-stocked emergency fund. It isn’t just that you’ll need to have the cash in the event of near-term emergencies, but it’s also because having such an account will make it easier to begin accelerating the payoff of your mortgage.

No matter how sound your plan is to pay off your mortgage, financial challenges will arise while you’re trying to make that plan a reality. A solid emergency fund will make that more doable by easing some of the financial stresses that you’ll encounter along the way.

Establish and Keep Feeding Your Retirement Plan

Paying off your mortgage early is an outstanding retirement strategy. You’ll eliminate your largest single expense and free up your home in the event you want to sell it in exchange for a more suitable home for retirement, or just to have extra capital for retirement investing.

But nothing can replace a well-funded retirement plan when it comes to retirement planning. It’s the foundation of all retirement planning, and needs to be a priority. One of the reasons it has to be a priority ahead of paying off your mortgage is that time matters heavily in retirement investing. The earlier you can begin investing, and the more you invest early on, the better off you will be. It’s all about the time value of money, and you have to get that working in your favor.

Before beginning to accelerate paying off your mortgage, be sure you have your retirement plan (or plans) well underway. In addition you’ll need to be able to balance both continued retirement plan contributions along with your additional mortgage payments.

Getting Ready for College

This one could go either way. Much like retirement planning, you’ll want to begin funding your children’s college education early to take advantage of the time value of money. On the other hand, if you plan to free up the equity in your home as a means of paying for your children’s college, then paying off the mortgage would get the nod.

Pay Off Lesser Debts

It makes little sense to pay off a long-term debt like a home mortgage when you have substantial unsecured loans, like credit cards and student loans. Credit cards have the additional risk of having variable interest rates. Since the potential for those rates to go substantially higher is real, you should pay those off before taking on a more stable debt like a mortgage.

Student loans are usually substantial, even if rates are lower than they are for credit cards. One of the reasons you want to pay these off ahead of a mortgage is that if you encounter financial difficulties, you can usually sell your home to pay off the mortgage on it. With student loans, there’s nothing that can be sold to pay them off.

The other issue with student loans is that if you have children and you plan for them to attend college, you certainly should want to pay off your own student debts well before they begin attending college and are in need of funds for the same purpose.

Auto loans are less of an issue. They’re secured, generally for shorter terms (five years or less), carry fixed rates, and are a way of spreading the cost of an expensive asset over several years. Paying off your mortgage ahead of these will be a greater benefit.

Always remember as well, that any loans you pay off will free up more of your income to use to pay off your mortgage. That fact alone should give paying off non-mortgage debt a priority.

It’s not that paying off your mortgage early isn’t important, but rather that some other financial goals might be even more so. In addition, prioritizing some other goals can also make the early pay off of your mortgage so much easier.

What do you think of setting other financial goals ahead of paying off your mortgage? Would you change any of these priorities?

This article was originally published October 19, 2012.

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Moving Your Money to a New Bank: 5 Step Checklist

Bank fees. They’re no fun. If fees are weighing you down, it might be time to change banks. There are many fantastic options out there, including online banks and local credit unions.

If you are one of those looking to move your money to a new financial institution, here are some steps you can follow:

1. Find a new bank.

The first thing you need to do is find a new bank. Consider what is most important to you in a banking relationship. Do you value low fees? Do you look for competitive yields on savings products? Do you want competent customer service? Figure out what would make for an improved banking relationship, and look for a financial institution that fits your needs.

If you go with an online bank, make sure you understand how depositing checks would work. For online banks and credit unions, find out about the ATM network so that you can avoid fees.

2. List your automatic obligations.

Chances are that you have a number of automatic obligations that need to move along with your money. List out the automatic withdrawals coming from your account: from your TV payment to your monthly gym membership to your automatic transfers to your emergency fund. You should also list out your direct deposits.

You don’t want any of these obligations to fall through the cracks!

3. Open your new account and fund it.

Now that you have a new account, you need to fund it. This is important, since you will need to make sure that your new account has enough money to cover obligations that get switched over.

At the same time, you need to take into account the fact that some of your automatic obligations will take longer to switch over, so you’ll want to make sure there is enough cash in the old account to cover any obligations that are slow to switch. Find out what documents you will need to open your account.

4. Make the switch with your automatic obligations.

With your account open, you can contact the companies that automatically withdraw from your old account and let them know about the switch. Find out how long it will take them to start withdrawing from your new account (it might take an entire billing cycle to make the switch). You will also have to update all of your information on linked sites like Amazon, PayPal, and your emergency fund savings account.

5. Close your account after everything switches over.

Keep track of which bills have made the switch. Watch your accounts, and check off the accounts as they beginning drawing from your new bank. (And pay attention to make sure the direct deposits are going to the new account.)

Once all of your automatic debits are switched over, and your direct deposits are going into the right account, you can finally go in and close your old account. When you do, make sure that you let the teller know why you are switching your bank accounts over – especially if it is for the fees.

Are you switching bank accounts? How easy or difficult is this process for you?

This article was originally published October 15, 2012.

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How to Create an Effective Long-Term Financial Plan

Long-term financial planning is a key part of building wealth over time and creating your own success.

Creating an effective long-term financial plan can seem like a daunting task, however. In fact, many people get scared of the idea of creating such a plan, unsure of how they will be able to plan that far in advance.

If you want to create an effective long-term financial plan, here are a few steps you can follow:

1. Determine your goals.

Your first step is to figure out what you want to do with your money. Be specific! Too many people just have a vague idea that they should save for the future. Instead, look to the future, and determine what you want your financial resources to be used for. Some common milestones include:

• Buying a home
• Paying for your kids’ college education
• Retirement

Think about these milestones, and what it takes to meet your goals. You might have to break it down to say, “I want to save up $20,000 for a down payment on a house in the next three years,” or “I want to build up a next egg of $1 million so I can travel during retirement.”

Talking about your goals makes them more “real,” and you will be more likely to actually work toward them when you flesh them out.

2. Figure out what you need to do to make it happen.

Next, determine what you need to do in order to make it happen. There many online calculators that can help you estimate how much you need to set aside each month in order to increase the likelihood of reaching your goals. You can figure out how much you should put in an emergency fund, and how much should go in a tax-advantaged retirement account.

You can also get professional help in figuring out what to do in order to make your dreams a reality. There are a number of fee-only financial planners who are willing to help you chart a course over time. You pay one fee, and you get a financial plan that might even provide you with help deciding what to invest in, and what insurance policies make sense for your situation.

When you have clear goals, and a way to reach those goals, it’s much easier to stick with your plan.

3. Review your plan periodically.

Of course, life changes. You might have small changes crop up that mean a slightly different course of action over time. Your financial plan doesn’t have to be completely set in stone. You can review it on occasion to see how it stacks up. You might need to make some small adjustments over time in order to ensure that your plan remains effective.

Before you make drastic changes, though, make sure that you carefully think through the consequences. You don’t want to always change your plan. In fact, there are times when your plan can serve to keep you on track – even if you don’t feel like sticking with the plan right now. Remember that your long-term financial plan is designed to help you improve your situation over time. Sometimes that means that you have to make hard choices now.

Think about your plan, and what makes it work. And, more importantly, regularly remind yourself that your plan is going to lead to a future that is financially free.

What are some other ways you can create an effective long-term plan? What plan are you on? Leave a comment!

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Personal Finance Books on Sale

How long do you think it takes to write a personal finance book? How long would it take you to write a book on something that you’re really passionate about?

What you don’t realize until you get deep into a book project is that you, the author, tend to make the whole process of writing a book take much longer than it would have to be. The desire to get everything right for the reader’s means that you spend hours a day re-writing sections and changing whole chapters in order to make your points crystal clear.

The end result is typically that books take longer to write than planned but it’s a labor of love and all the time you put into the project turns out to be worth it. Capturing your expertise, experiences, or advice into memorable and actionable sentences, paragraphs, and chapters means that you can save others from making your same mistakes. Or maybe you’re able to share a system that was uber-successful for you and has the potential to help many others with their money.

Once the book hits Amazon and you start getting reader feedback you’re glad that you put in the time and shared your nuggets of knowledge with the world. I met a group of self-published authors in St Louis last month that have been through this process.

They’ve written books on a variety of personal finance topics such as:

-Earning extra money
-Saving money at the drug store
-Getting out of debt
-Hiring a financial advisor
-Investing and IRAs
– Social Security and Retirement

Collectively they’ve logged hundreds, probably even thousands, of hours putting together books on the topic of managing your money. After the conference, several of us put our heads together and decided as a group to make our books available to you at a discount for a brief time.

Personal finance types are a fan of books because they’re a cost effective way to learn. Books can contain a lot of useful information for a pretty low price so the frugal side in us sees them as a preferred learning method. None of the books that we published are that pricey to begin with but we decided to offer them at a discount in advance of Black Friday.

Unfortunately, many of us tend to get a little reckless with our finances during the holidays. The emotions of the season can cause us to make some bad money decisions. So take some time this week to absorb some of the books we have on sale and read up on ways to protect your money during the holiday shopping madness and to get your finances ready for the new year.

My contribution to the sale is the Debt Heroes book I helped put out earlier this year. It should give you some good tips to stop debt from creeping up on you during the holiday shopping madness. So take advantage of all the hours these personal finance authors spent packaging together tips and tools for your money and check out the book deals. They’re only running for a few days this week so head over and see if there’s anything there you can use.

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9 Ways to “Beat” the Stock Market

One of the truths about the stock market is that it’s extremely difficult to beat consistently. What makes it even harder is that often we let the stock market beat us mentally which makes us act in irrational ways.

Rather than thinking about beating the return on the stock market, you need to learn how to make the most of your investing plan. Here are some ways to help you stay on top of the stock market:

1. Reduce the emotion involved in investing.

One of the worst things you can do is let emotion rule your investing too much. While you can’t get rid of emotion entirely, you can control it so that you don’t make as many mistakes.

Don’t get caught up in euphoria and buy when the price is high, and certainly don’t let blind panic induce you to sell just because the price is lower – read the book “Why Smart People Make Big Money Mistakes.”

2. Consider the fundamentals.

Part of reducing the emotion involved with investing is considering the fundamentals. Before you buy, consider the strength of the company, and find out more about the “big picture” items that can influence long-term strength for the investment, such as management, profit margins and industry growth.

If nothing has changed in your fundamental analysis, and a price drop is due to a general market decline, selling based on panic could cost you in the long run.

3. Appropriate diversification.

In order to help protect your investment portfolio from drops in one sector, some diversification is important. Figure out a good asset allocation, and figure out how you can limit your exposure to one sector. Make sure all of your eggs aren’t in one basket.

4. Watch out for high fees.

Investment fees can erode your returns over time. When you pay fees, it cuts into what’s available to invest, as well as how much you end up with. Look for brokers with low fees so that you keep more of your money.

5. Don’t confuse a broker with a financial advisor.

You need to be aware when getting investment advice from a broker that they don’t have a fiduciary duty to you as an investor. This means that they do not have to look out for your best interest first. A financial advisor, on the other hand, is required by law to look out for your best financial interest.

6. Avoid over-reacting to big market movements.

Sometimes, in the short-term, we see big drops or big gains. In the short term, the stock market is volatile, but over the long term a lot of the volatility has historically evened out to an overall upward trend. Before you buy or sell based on a big market movement, take a step back and think about your reasoning. A measured response to short-term volatility is important. Again, read the book “Why Smart People Make Big Money Mistakes.”

7. Understand what you’re buying.

Before you buy a stock, you should undertand it. What does the company do? How does it make money? Why do you want to purchase the stock? Find out about what you are buying, and make sure you understand the industry so that you can evaluate the stock on its merits.

8. Avoid buying based on hype or “hot tips.”

Watch out for investments that have a lot of hype. Also beware of “insider” tips from friends and family. Realize that often hype is used to generate interest in an investment.

You don’t want to buy in during the “dump” phase of a pump-and-dump. Do your own research and don’t rely only on what others are saying.

9. Don’t be afraid of taking some risk.

While you do want to protect against excessive risk, you do have to realize that some risk is necessary if you want to make money. Only by taking on some risk will you be able to realize adequate gains for your investing goals over the long term.

What are some other ways to actually “beat” the stock market? Leave a comment!

This article was originally published September 7th, 2011.

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Important Tips for Reformatting Your Resume

When was the last time you reformatted your resume? Are you still using the old style of resume that includes a list of positions and responsibilities? If so, it might be time to reformat your resume to reflect the current interest in less clutter, and have more emphasis on job keywords and actual accomplishments.

As you prepare to change up your resume, consider that there are some things your resume doesn’t need anymore – and some formatting ideas you can follow to make your resume more readable.

What the Modern Resume Doesn’t Need

As you reformat your resume, consider whether you even need certain sections. One of the things that isn’t really needed on a resume these days is the “objective” section. This is especially true if you are sending in a cover letter. Your cover letter pretty much shares your objectives, and re-stating it on your resume is unnecessary and takes up space.

Some other things that may not be necessary in the new resume format include:

• Pictures: Unless your job hires based on looks (acting, modeling, etc.), you don’t need to include a picture.
• Border: There is very little reason to use a border on a resume. It tends to clutter things up a bit.
• Salary requirements: There is no reason to include these. Instead, focus on your accomplishments and qualifications.
• References: You don’t need to include references on your resume, unless specifically asked to. And don’t use the “references upon request” line. It’s not needed, and it takes up space.

Check your resume for these offenses and get rid of them. Then, reformat your resume so that it is readable.

How to Make Your Resume Readable

Right now, the readability of a resume revolves around using white space in the formatting. You don’t need to use lines and boxes to separate different sections of your resume. Instead, use the white space that occurs when you space down an extra line. There is a break, but it looks cleaner. Keep this in mind as you format your resume.

You can use the “header” function for your contact information. Instead of listing it all down the upper lefthand corner, put it in the header. You can list it across the top of the resume in order to preserve neatness, and keep it all in line. Then, you will have more room for the “meat” of your resume.

List most relevant information first. Is your work experience more important for this particular job or is your education more important? This will dictate which section is listed first. It’s easier to skim a list of items. Depending on space, limit bullet points under a job title or employer to between three and six items.

Use action words to describe what you accomplished. You shouldn’t just list responsibilities! You need to show that you have actually done something. If you don’t want to use a list, you don’t need to though. You can replace a bulleted list with a two to three sentence description of your responsibilities and accomplishments in a particular position.

As you list your history, don’t put the date first on the line to the left. Instead, list the name of your employer first, and the location, on the left. The date should be to the right on the line, something that can be looked at later if desired. The emphasis should be on your qualifications, and what you have done – seeing a date first distracts from that.

Look over your resume, and check online for some current examples and templates. Compare what you find to what you have. Chances are that a little reformatting can help your resume stand out in a positive way.

Neglecting to modernize your resume could be considered one of many money mistakes, as it might be the difference between landing a job and not. Whether you’re a college graduate looking for some of the best jobs available, or have been in the workforce for several decades, it’s important to keep your resume up-to-date and pleasing to the eye!

Are you planning on reformatting your resume? Have any questions? Leave a comment below!

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How to Pay Your Bills When You’re Broke

What happens when you’re broke, but you have bills to pay? This is a difficult situation faced by thousands of people each day. Figuring out what to do when you’re out of money and can’t pay your bills can be very stressful and unpleasant.

Late fees start to pile up, and, in some cases, you might be in danger of losing an asset that you want (or need) to keep. When you’re in a tough situation like that, it’s important to step back and pay attention to your options.

Paying your bills when you don’t have enough money requires that you think through the situation, and communicate with your creditors. Here are some things to keep in mind as you decide what to do when you’re out of money.

Prioritize Your Bill Payments

Your first step is to prioritize your bill payments. What’s the most important item on your list? If you need to keep the heat on, that’s a bill you should pay. If you need the car to get to work, you don’t want to jeopardize your income, so you need to pay on the loan in order to avoid having the car repossessed.

Think about which bills are likely to have the biggest impact on your situation. It’s true that late fees can pile up quickly when you miss credit card payments, but it’s also true that credit card debt is often more negotiable than mortgage debt – and you don’t usually lose your home if you default on credit card debt.

Another consideration is what you can do without. Do you really need cable TV? What about that magazine subscription? The gym membership? Expensive cell phone plan? Go through your obligations and figure out if you can cut some of them out. Dropping some of your bills can help you find money to pay the most important items.

Take an honest look at your budget, and then cut out the items that are unnecessary. Recognize which bills are truly the most important, and make sure those are paid. It might be uncomfortable, but one thing that can help is to show your prioritized list of bills to someone with an objective perspective and see if they notice anything that might need a second look.

Communicate with Your Creditors

It’s vital that you keep the lines of communication open with your creditors. If you have lost your job, or if you have suffered a financial setback of some other kind, you need to let those you owe money to know immediately.

In many cases, if you contact your creditors quickly, and show that you want to work something out, it’s possible to get the help you need.

Student loan payments can sometimes be deferred during times of hardship. In some cases, you might be able to get a mortgage modification to help you with your situation. Many credit card issuers will negotiate a new payment plan with you. Utility companies can point you to agencies and programs that help those facing financial hardship pay their bills. In some cases, if you can prove financial hardship, service providers will waive early termination fees.

Just ignoring the bills can lead to bigger problems later. If you communicate, though, there is a chance you can have your payments temporarily reduced, or have some of your payments deferred until later.

You might not be able to get a mortgage modification, but if your utility payments are reduced and your student loan payments are deferred, it might free up some money to help you make a more important payment.

Save vs. Earn

You can increase the availability of money to pay bills by either cutting unnecessary expenses or earning more money – or by doing both. Your first step is to cut expenses. You should already be on this path if you have looked over your bills and determined which are the most important.

Prioritize the rest of your regular spending. Cut the least important expenses from your budget, and use the money saved to pay your obligations. Look for ways to reduce your spending, whether you are being more energy efficient at home, or whether you are brown-bagging it to save money on lunch at work. Find ways to cut back, and then use the money to pay your bills.

Finding Extra Money to Pay Your Bills

If your current situation means that you don’t have enough money to pay your bills, you need to see what you can do to bring in more money to cover them. You can do odd jobs, get another part-time job, or start a side business.

It’s also possible to start selling off some of your stuff. You can sell online, or hold a yard sale. I know it’s more of an extreme move but if you own your home it might make sense to sell and downsize if you don’t anticipate your income growing to cover your expenses anytime soon. Do what you can to raise more money, and try to develop more income so that you can afford to pay your bills.

In addition to earning more, you can also look for outside help to pay your bills. The local food pantry can provide you with staples that reduce your need to buy groceries. With the money you save on groceries, you can pay some of your bills. There are also community programs that can help you pay your utility bills, and help you find extra work to earn money.

If you belong to a church you can also turn to your local congregation for help. Many faith-based organizations have programs that can help you get necessities for less – or free – and that can help you pay your bills. Your family might also be able to help you by watching your children for free while you work to earn more money, or by helping you with groceries and other expenses.

Bottom Line

If you find yourself with less than enough money to pay your bills you’re not alone, many people have found themselves in the same difficult situation. Although things may seem bleak there are options and resources available.

Prioritize your bills and your spending so that the most important obligations are met first. Look for help, including talking to your creditors about your options. Then, cut expenses and earn more money. Once you improve your situation, remember to build an emergency fund, give back, and try to follow these money rules to try and avoid the same problem in the future.

What tips or tricks have you used to pay down your bills when you found yourself without enough money to cover them all? Leave a comment!

This article was originally published June 28th, 2012.

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