A Recession Is Coming. What To Do If You Can’t Pay Your Bills (2024)

If you can’t pay your bills, the last thing you likely want to hear is talk of a recession. So, where do you turn for help when rising prices and interest rates make the things you need and the debt you have more expensive?

While The Conference Board says there’s a 96% likelihood of a U.S. recession within the next year, there are steps you can take today to help recession-proof your finances and find the help you need with your bills.

Step 1: Shore Up Your Savings

Recessions typically come with unwelcome consequences, including layoffs, and for those who are lucky enough to retain their jobs, fewer financial incentives like bonuses from employers. Roch Monnig, a certified financial planner (CFP) and owner of Deeper Pockets, a fee-only financial advisory firm, says that bolstering your savings can help prevent financial and emotional stress.

“To maintain some sense of normalcy, it’s important to identify your sources of liquidity like your savings, particularly your emergency fund,” he says. “Chances are you’ll need to make use of this.”

No matter how much you have in your emergency fund—even if it’s zero—you can score a gift from the current rising interest rate environment: better returns on your savings. The best online savings accounts currently yield well over 2%, with some at a whopping 3% or more. You might even consider parking some cash in an I bond account from the U.S. Treasury, which has a fixed interest rate of 6.89%.

If you’re struggling to find available cash to boost your savings, Monnig suggests taking a close look at where your money goes each month. Having your hours reduced or losing your job doesn’t mean you have to slash your lifestyle or cut out all the fun.

For example, to trim expenses you could consider:

• Switching to a lower-cost cell phone service provider
• Canceling streaming networks while your favorite shows are between seasons
• Check Groupon for deals at your favorite restaurants and local attractions
• Switch your food delivery apps to pickup instead of delivery

“You need to be honest with yourself and determine which of these expenses are truly worth funding while you navigate this period,” he says.

Step 2: Prioritize Your Bills and Get Creative

If your savings can’t help you weather a recessionary environment, it’s time to prioritize your bills, as they’re not all created equal.

Celeste Revelli, director of digital planning at Fidelity Investments, recommends prioritizing those relating to shelter, food, transportation and healthcare.

If prioritization helps but doesn’t quite bring you across the finish line, you can also consider more creative (and temporary) ways to boost your cash flow.

Rethink Your Housing and Utility Costs

Getting a roommate, renting out a bedroom or temporarily moving in with family can slash your housing and utility costs. But remember that terminating a lease can come with complications, including paying fees, hurting your credit and even getting sued. Also, with rent prices soaring, you may have to pay more to rent again when you move out.

Consider a Side Hustle

A few hours spent each week in the gig economy could offer the cash you need to make ends meet. Look for gigs where you can set your own hours—like ride-hailing or food delivery—and those platforms that offer same-day payouts. If you don’t have a car, don’t worry. Countless online survey and digital task companies will pay you for your time and effort. While these platforms won’t make you a millionaire, they could offer some financial breathing room and decrease your stress.

Step 3: Evaluate Your Options

If you still can’t pay bills after spending and lifestyle adjustments, you may be able to leverage additional resources for the aid you need.

If You Need Help With Spending

If you’re struggling to pay your bills because you’re living beyond your means, you likely need to create a budget. The good news is that you don’t have to build a budget alone.

“You can use a budgeting app to create custom budgets, set goals, and track your essential spending,” says Brittney Castro, a CFP with Mint. “Dedicate 50% of your monthly income toward needs, 30% to non-essentials and 20% to savings.”

Read more: Your Guide To The 50/30/20 Budgeting Rule

If You’re Struggling With Your Rent or Mortgage

Feeling uncertain about the roof over your head is incredibly stressful. There’s potential help available for both renters and homeowners, but it can be time-consuming and complicated to get.

You’ll likely have to meet specific income requirements and provide documentation supporting your relief request. Application processes can be unclear and cumbersome, and there’s no guarantee that you’ll qualify for assistance.

But for renters and homeowners willing to go through the application processes for housing relief, there are some solid resources to get you started.

“Those struggling with rent payments and facing eviction can look for local rental assistance programs on the National Low Income Housing Coalition’s website,” says Leslie Tayne, a financial attorney with Tayne Law Group. You can find resources specific to your state using this interactive map.

You can also contact local tenants’ associations to see if you qualify for relief. Be sure to review the application and qualification requirements for relief, which might include:

• Photo identification
• Utility bills and disconnection notices
• Eviction notice
• Proof of income
• Copy of your lease
• Written explanation of your hardship

If you’re a homeowner struggling with your mortgage, it pays to contact your lender directly and as soon as possible. Some servicers have programs to help people avoid foreclosure, and they’ll review your situation.

Tayne also says that both renters and homeowners can use the resources available from the Consumer Financial Protection Bureau (CFPB) to find low- to no-cost housing counselors in your area.

Housing counselors are well-versed in various options available to both renters and homeowners. In a single call, they can help you review your lease or mortgage documentation and hardship situation and point you toward assistance programs you might qualify for in your city, state, or federal level.

If Student Loans Have You Stressed

With student loan repayments set to restart in January 2023, it’s important to know that you have more options than ever for relief.

Your relief options will vary depending on if you have public (loans issued by the U.S. government) and/or private student loans (those issued by banks or private lenders). Most of the recent student loan changes from the Biden administration apply only to federal student loans.

First, see if you qualify for the new student loan forgiveness program. If your income is less than $125,000 annually (up to $250,000 per household), you could score forgiveness for up to $10,000 in federal student loans—$20,000 if you received a Pell Grant.

Forbes Advisor’s student loan forgiveness calculator can help determine your eligibility.

Though courts have issued orders blocking the implementation of this loan forgiveness program, the Department of Education is holding onto applications submitted prior to early November. The Biden administration is trying to get those orders overturned and advises signing up for email updates to find out when and if applications reopen.

Next, suppose you have federal loans but don’t qualify for relief. In that case, Matt Becker, a CFP and founder of Mom and Dad Money, says to make sure you’re on the best income-driven repayment (IDR) option available—which could also help protect you if you suffer a job loss or income cut.

Changes to income-driven repayments are also set to kick in come January 2023, to borrowers’ benefit. Under the new plan, minimum payments for IDR plans will decrease from 10% to 5% of income earned in excess of roughly $33,000 per year (225% of the federal poverty line) for undergraduate borrowers.

If those payments cover your monthly interest, you’re in luck: The government will forgive the remaining interest so your loan balance won’t increase. Borrowers with original loan balances of $12,000 or less will also qualify for loan forgiveness after 10 years instead of 20.

“You can also take time now to research the steps needed to change your monthly payment so that you’re prepared to do so if your income changes down the line,” Becker says.

If you’re already behind on student loan payments, be sure to put the new Fresh Start program on your radar. This program—set to kick in at the end of the Covid-19 payment pause on December 31, 2022—can bring your loans current, remove defaulted loans off your credit report and renew your access to federal relief and forgiveness programs.

If you’ve already reached out to your servicing company or lender, yet can’t find the help you need for your student loan payments, the CFPB has your back with a concise collection of resources about student loan relief provisions and repayment options.

If You’re Struggling With Utility Bills

If your heat, cooling, water or other utility bills are sending an SOS signal, you have multiple resources you can look into for help.

First, you should always contact the utility directly and ask for help. Most utilities have various forms of assistance, from payment plans and low-income programs to local assistance agencies that can help you pay your bills and keep essential services from being disconnected.

Next, you can look into national programs that are locally managed, such as the Low-Income Home Energy Assistance Program (LIHEAP), which has resources for state, territory and tribal areas.

The Salvation Army also runs programs that help people pay their essential utility bills, and you can use its website to find contact information for your local chapter.

If You’re Struggling With Credit Cards

If you’re unable to keep up with your credit card bills, do what you can to stop using your credit cards and reach out to your card issuer. You can switch to paying cash or using your debit card, or if you must continue using your credit card, try to pay off the charges you incur each month going forward to avoid adding to your existing balance.

And if you’re hesitant to tell your card issuers you’re having a rough financial time—and for whatever reason—try to shift your thinking. Asking for help is a sign of strength and financial responsibility.

“Lenders have long had help available for someone struggling, but not that many people know about these programs,” says Ted Rossman, senior analyst with CreditCards.com. “Companies offer these [programs] partly out of goodwill but also for practical reasons. They’d rather keep you engaged and get paid back over time as opposed to having you disappear and go into delinquency/default and lead to expensive legal proceedings.”

When you contact your credit card issuer, Rossman suggests knowing what you’d like to achieve, from skipping a payment or avoiding late fees to reducing your minimum payment. It also helps to have an estimate when you’ll be back on your feet.

If You’re Struggling With Significant Debt from Multiple Sources

If you’re struggling to pay bills on all fronts, you might want to manage everything with professional assistance through credit counseling.

“Money Management International and GreenPath are two of the largest [nonprofit agencies] and both operate nationwide; they do a lot of their sessions over the phone or computer, which is convenient,” says Rossman.

When evaluating credit counseling agencies, Rossman says a good seal of approval is a company with a membership to the National Foundation of Credit Counseling.

Credit counseling agencies are nonprofit agencies that can help you stop creditor calls, lower your interest rates and consolidate your debt payments into a single monthly payment.

Read more: How Credit Counseling Can Help You

Though it’s easy to confuse debt settlement companies and credit counseling agencies, debt settlement companies are for-profit companies and their tactics can harm your credit and even leave you worse off than before you hired them. They also tend to charge fees which are considerably higher than nonprofit debt counseling services.

For example, a debt management plan fee at a credit counseling nonprofit is typically capped to a per-month fee (for example, in California, the cap is the lesser of 8% of what you pay creditors monthly or $35).

At a debt settlement company, you’ll be charged a fee of roughly 15% to 25% of the debt the company is settling. This fee could be assessed on the total debt the company has to negotiate or on the settled amount. For example, if you have $20,000 in debt that the company settles for 50% ($10,000), you could be hit with fees ranging from $1,500-$2,500 in addition to the $10,000 settlement amount.

If You Have Unconventional Emergency Expenses

If the bills and emergency expenses in your life don’t neatly fit into a single category, you could consider a crowdfunding campaign. While there’s no guarantee you’ll get donations, crowdfunding can raise money for situations such as an urgent need to move, sudden loss of income or unexpected medical bills not covered by insurance.

You can create a crowdfunding campaign to share with your friends and social media accounts. These campaigns let you tell your story and why you’re asking for help to empower contributors to share your campaign for more exposure. To keep more of what you raise in your pocket, be sure to compare costs, as they can vary widely. For example, sites like Fundrazr, Plumfund and GoFundMe have no platform costs and transaction fees below 3% per transaction. However, sites like Fundly add in additional platform costs (4.9%) on top of transaction fees.

Step 4: Stay On Track

Even if you find much-needed relief from the resources above, there’s still work to be done to make sure you stay on track with your bills.

First, make a budget and stick to it. Your budget and a simple budgeting app can help you track expenses and keep you informed about where your money is and isn’t going each month.

Next, talk to friends and family. According to recent data from LendingTree, 32% of Americans say they’ve paid a bill late in the past six months, and 61% of the people in that group said it was due to not having the cash. You may know someone who’s been in a similar situation. Speaking to friends and family can introduce you to resources you didn’t know were available in your area.

Finally, if you struggle with any aspect of your finances, don’t be afraid to ask for help. Every utility, business or lender you reach out to has resources for those who might be struggling, and you won’t know what they are until you make that call.