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What to Do When You Can’t Make the Minimum Payments

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At first, the credit card payments didn’t seem like a big deal. A few bucks here, a few bucks there. You didn’t pay attention to the interest or the balance. That is, until you added up the other bills. Student loans. An unexpected trip to the emergency room. A new fridge when yours dies. Before you know it, you’re out of money—but you still have bills to pay.

If you’re in this boat, don’t get discouraged. You’re not alone. And you can dig your way out of this hole. It takes a lot of sacrifice and hard work, but you can do it!

Step #1: Lighten the Load

Your first goal is to get and stay current on all of your bills. That means you need some extra cash—and fast! Sell that expensive car and get a cheap-but-reliable older model. Have the biggest yard sale ever. Sell everything that doesn’t breathe. All of that money goes toward those bills that are past due.

Related: 9 Steps to a Perfectly Profitable Yard Sale

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Step #2: Use the Pro Rata Plan

The next step is to set up a pro rata plan for paying your bills. Pro rata means "fair share." You give each of your creditors their fair share of the money you have left after you’ve paid for the essentials. Here’s an example of how that might work:

  1. Write down your income: $2,000
  2. List how much you spend on necessities (not including the debt): $1,700
    1. Food
    2. Rent or mortgage
    3. Transportation
    4. Utilities
    5. Clothing (essentials only!)
  3. Subtract these expenses from your income: $300

In this case, you have $300 left over to pay your creditors. This is your disposable income.

Once you know how much money you can spend on debt payments, you need to figure out how much each creditor should get—their fair share (or pro rata). This part is a little more complicated, but stay with us. Here’s how you calculate it:

  1. Write down the name and the total amount of the debt on each of your accounts. For example:
    1. Visa card: $150
    2. Student loan: $700
    3. Hospital bill: $150
    • Total: $1,000

  2. Divide each bill’s total amount by the total debt you owe:
    1. Visa card: $150 divided by $1,000 = 15%
    2. Student loan: $700 divided by $1,000 = 70%
    3. Hospital bill: $150 divided by $1,000 = 15%
    • Note: Those percentages should add up to 100%. If they don’t, check your math.

  3. Take the percentage of each debt and multiply it by your disposable income—$300 in our example. The number you get is the amount of money you can pay each creditor fairly.
    1. Visa card: 15% x $300 = $45
    2. Student loan: 70% x $300 = $210
    3. Hospital bill: 15% x $300 = $45
    • Note: These numbers should add up to $300—the full amount of your disposable income. If they don’t, check your math again.

Let’s look at another example with the pro rata amounts already worked out.

  • Income $5000
  • Necessities $4000
  • Disposable Income $1000

Total Debt: $10,000

Debt: Total Payoff ÷ Total Debt = Percentage x Disposable Income = New Payment

  • Visa card:                $1,500 ÷ $10,000     = 15% x $1000     = $150
  • Master card:           $2,000 ÷ $10,000     = 20% x $1000     = $200
  • Student loan:           $5,000 ÷ $10,000     = 50% x $1000     = $500
  • Store credit card:    $1,500 ÷ $10,000     = 15% x $1000     = $150

Total New Payment = $1,000

Keep in mind: The pro rata plan is not a long-term solution. You won’t get out of debt this way. However, making monthly payments to each creditor goes a long way in keeping you out of court.

Step #3: Send Payments With a Letter

You’re almost done. Make copies of your math, including your income, expenses, disposable income, and the calculations you made to give every creditor their fair share. Include this letter with every bill, every month.

Your creditors won’t like getting less than the minimum payment, but if you keep sending checks every month, they’ll probably keep cashing them. You’ll still get phone calls and people will still try to bully you into paying more, but don’t let that rattle you so much that you agree to some stupid arrangement you can’t afford. And never, ever give a creditor access to your bank account for automatic withdrawal every month. They’ll clean you out—even if they say they won’t. Problem not solved.

Related: What Collectors Can (And Can’t) Do

Now What?

Remember, the pro rata plan is only a short-term solution. It just gives you enough breathing room to make long-term changes for the better. Get a second job until you’re caught up and current with your bills. Consider downsizing your home so you can make more manageable payments. Switch your cell phone plan to a pay-as-you-go service—and use your phone only for emergencies. Get a roommate and share expenses. You have options!

Most importantly, you must learn to hate debt. Get mad at it. Attack it full-force. It’s not your friend. If you don’t change your behavior and your attitude, you’ll be right back where you started—in a hole. You don’t ever want to go there again, so do whatever it takes to say goodbye to debt for good!

It might seem overwhelming in the moment, but stick to it! Imagine how amazing it will be to get on the other side of this mess. You can achieve financial peace, one baby step at a time.

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