Lacking the cash to pay your bills is a bad situation, but avoiding the problem is worse.

If money is scarce and bills are coming due, don’t panic. Gather
your statements and a calculator, and go into planning mode. Tackle the
crisis as a whole, rather than dealing with issues as they arise, which
raises the risk of making poor financial decisions that could affect
you for years to come. As you pull yourself together, keep these five
crucial steps in mind:

Call the companies you owe: People faced with a
budget shortfall will often try to avoid the companies they owe. They
simply stop paying without giving a reason. But you should always call your creditors to alert them of your predicament. They might be willing to negotiate a compromise that will resolve the situation.

Prioritize your bills: One of the biggest mistakes
people make when money is short is to try to be “fair” when paying
their bills. If they can only afford to pay one bill, they pay one this
month and a different one next month. It might seem like a logical
solution, but they could hurt their credit scores and anger the companies they owe.

Some bills are more important than others. Prioritize your creditors and then pay them accordingly. Your mortgage lender should be at the top of the list.

Conserve cash if you can’t pay your mortgage: When people realize they can’t afford their mortgage, they often put those funds toward other bills. They should save that cash instead.

If you’re falling behind and facing foreclosure, you’ll need enough
money to rent a new home. While foreclosures take months to complete,
the previous owners usually have to move right away.

Know your rights: If you can’t make deals with the companies you owe, expect calls from aggressive debt
collectors. They’re allowed to call people who owe, but they’re not
allowed to threaten debtors with violence, arrest or seizure of
property. They’re also prohibited from calling at odd hours or using
obscene language. For more on the Fair Debt Collection Practices Act, visit the Federal Trade Commission’s web site.

Don’t ignore the situation: People caught in a financial crisis face difficult choices, but they need make them. Delaying action will
only make the problem worse and leave you with fewer options.
Addressing the issue immediately prevents the kind of long-term damage
that leads to financial ruin.