Last week’s tip for our Countdown to the New Year Series on five easy steps for managing inflation focused on the importance of paying yourself first. This week’s tip emphasizes the power of paying off your past due bills as your second step.

If you are finding it more and more difficult to pay your bills on time, you are not alone. This is because the U.S. economy has roared back from the COVID-19 pandemic with such intensity that:

  • Disruptions in the supply of goods, groceries, household supplies, also called the supply chain, has caused the availability and prices of goods to skyrocket.
  • Inflation has hit unprecedented levels not seen since the 1970s.
  • On average, American’s are buying more and more of life’s necessities using their credit cards.

According to the Federal Reserve Bank of New York, as published in its Quarterly Report on Household Debt and Credit Report the total household debt in the third quarter of 2022, increased by $351 billion (2.2%) to $16.51 trillion. This means the average American spends more than 9% of their monthly income on debt payments. And because the amount we can buy with our current monthly income will only decrease as inflation continues, it is important for families to pay off their current debt as quickly as possible and avoid falling behind on current bills.

Here are some actions you can take to reduce the amount of debt you owe:

    1. Make a list of all the nonmedical debts you owe that are in collection and the amount you need to pay each debt off.
    2. Make a list of all medical debt expenses you owe, the amount you need to pay each medical debt off and separate them from the nonmedical debts you owe.
    3. Take the list of nonmedical debts and organize them in order of age and where they are in the collection process. For example, a three-year-old credit card debt may be with a collection attorney; another debt may already be scheduled for a court hearing; while another may have just been sent to collections and you have only recently received your first notice.
    4. Pay off any debts that are small enough for you to eliminate if you make one payment, such as a $140 cable debt or a $75 parking fine.
    5. Contact any business to which you owe money or that is collecting your debt and explain your situation. Tell them you are trying to pay off all your outstanding bad debt and ask them to reduce or settle the amount you owe by some amount. For example, you may offer to set up a payment plan of $30 per month for 12 months, if they reduce the amount you owe by 50%.
    6. Document who you talk to, and any agreement you reach, And the phone number and website address of the company.
    7. Do your best to stick to your payment plans and call the business, collection agency or collection attorney immediately if you fall behind. They will help you work out a new arrangement or suspend payment for a couple of months without interest.
    8. If you are on active military duty or are a dependent of a person on active military duty, notify all your creditors and any collection agencies asking for repayment of your service status. You are entitled to special protections and benefits under The Servicemembers Civil Relief Act.
    9. Even if you have yet not fallen behind in your monthly payment to a particular business for an ongoing service you receive such as cable, internet, garbage, heating, or even electricity, call the business, explain your financial situation, and ask them to reconsider the rate they charge you for the service. Often, they will adjust your bill. Do the same with all debts owed to medical providers, hospitals, doctor offices, clinics, and the like.
    10. Understand that unpaid debt can negatively affect your credit rating, the amount you pay in interest on personal and car loans, and your ability to borrow money in the future. Paying your debts puts you in a better financial position.

Taking these actions, along with last week’s tip of paying yourself first could help you manage inflation and stay ahead of your finances.

Can you think of other steps you can take to help you pay your debts? Watch for the next tip in our inflation busting countdown to the new year.