What should you do when your bills pile up?

DURING A RECESSION, IT’S EASIER FOR even responsible borrowers to fall into trouble with debt. But when the bills pile up, some people make the wrong decision to ignore them, which can have a severe and lasting impact on your credit rating.

Instead, whether you’re behind on a few payments or completely in over your head, experts say it’s best to sit down and spend a few hours creating a comprehensive debt repayment plan. Based on advice from New Hampshire Employment Security and the University of New Hampshire Cooperative Extension, here’s how to do it:

1. Find out who you owe and how much you owe: When you have more bills than you can handle, the first step is to make a list of all your debts – mortgages, car loans, credit cards, etc. It helps to make chart that lists the total amount due on each account, the monthly payment, the interest rate and the number of payments remaining. That way you have a realistic idea of what you’re facing.

2. Decide how much you can pay back and when you can pay it: Next, on a separate piece of paper, calculate your total monthly income, after taxes and automatic deductions like health insurance. Then list all your monthly expenses, including regular bills (mortgage, car payment, etc.), expenses that vary from month to month (food, clothing) and periodic expenses (car registrations, oil changes). Compare the two and design a “bare bones” spending plan that reduces as many expenses as possible. Then set your spending priorities for the coming months.

3. Set up a plan for paying back your bills: There are several ways to go about this, and the best method will depend on your personal circumstances. You can pay the “most important” bills first – food, rent and utilities – and then spread what’s left between other debts. Or, you can give priority to the bills with the lowest balance or the highest interest rate. Some people decide to set up reduced payment plans by negotiating with creditors. Or, you can consolidate your debts by taking out one big loan to cover all of them.

4. Discuss your plan with creditors: No matter what you decide, let your creditors know. It’s never a good idea to leave them in the dark. Meet with them in person, call them, or send them a letter. Explain that you are unable to pay the full bill and tell them why. Tell them how much your reduced payment will be and when you expect to return to a normal payment schedule.

5. Control your spending by sticking with your debt repayment plan until bills are paid: Try to keep up with the payments as agreed. And until you get back on your feet, try not to use any more credit.

6. Occasionally look over your plan to see if you are keeping up with your bills and your daily living expense: If there is a change in your income, raise or lower your monthly payments accordingly.

Compiled by staff writer Ashley Smith