Today we’re going to tackle the third step in the process of overcoming your debt. Before we get into those details, let’s take a look at the five steps. In order, they are:
- Cut Expenses
- Maximize Income
- Get Current on Everything
- Use the Dave Ramsey Debt Snowball to Arrange Your Debts
- Make a Call Every Time You’re Ready to Pay Something Off
Psalm 37:21 says that “The wicked borrow and do not repay, but the righteous give generously” (NIV). I do not expect you to avoid paying your bills and I do not condone bankruptcy in 99%+ of situations. HOWEVER, there are simply going to be times when something happens in your finances that will keep you from being able to pay a bill on time. These situations can get expensive quickly and can create a dangerous financial whirlwind if you don’t get past due bills under control quickly. Since we’ve already covered steps 1 and 2 (Cutting Expenses and Maximizing Income, respectively), today we’ll discuss step 3: bringing all your past due bills up to date*. Why did I wait until step 3 for this task? If you’ve not cut expenses and maximized income before you try to tackle this step, you may find you won’t be able to handle this step and will quickly get frustrated and give up on the whole process. So while it may cost you a little money and aggravation to do steps 1 and 2 before this one, don’t skip them!
When you go past due on your bills, three bad things almost immediately happen: 1) late fees are charged, 2) higher interest rates can be imposed, and 3) collectors start calling. You don’t want any of these things! This means that before you focus on paying off any of your debts (no matter how small), you need to bring any past due bills up to date.
There is one big caveat I want to mention. If you have a debt that is really old and you aren’t getting phone calls or letters about it, WAIT to pay it. Work on those past due bills that are actively causing an issue first, and then get to those dormant ones. In addition, there is the concept of time-barred debt. Time-barred debt is debt that is so old that the law prohibits collectors from taking legal action if you do not pay. I don’t want you to avoid paying these old debts (remember Psalm 37:21), but don’t get in a rush to bring old debts back into your situation until everything else is under control.
Last but not least, keep in mind that this step may take you some time and depending on how far you’re past due, this whole process can be a little tricky. If you’ve only got one or two bills past due and they’re only a little late, this step won’t take very long. If you’ve got a lot or some really old debts, this one may take you a while. Don’t be in a rush! Don’t do anything out of desperation; during this step you’ll likely be dealing with collectors. If you allow emotion to come into play, you’ll lose. Be logical, realistic and honest. Be patient, keep your focus and tackle the debts as your budget allows.