A 2021 survey from Bankrate found that only 39% of Americans said they could comfortably cover an unexpected expense of $1,000.
Americans are struggling to build up substantial savings, so it’s no surprise that so many struggle to pay their bills.
What is the Average Cost of Bills for Americans?
TIAA Institute conducted a research study in 2021 and found that “Twenty-two percent of U.S. adults report they cannot pay their bills in full and on time in a typical month.”
Life can be expensive, and the COVID-19 pandemic only brought additional financial strain to U.S. households. So, how much are the bills and expenses that so many Americans are struggling to pay? Let’s find out; here are some of the annual expenditures:
● Housing Bills: $21,409
● Transportation Bills: $9,826
● Grocery Bills: $7,316
● Personal Insurance & Pensions: $7,246
● Healthcare Bills: $5,177
● Entertainment: $2,912
● Education Expenses: $1,271
● Other: $ 907
Data provided by U.S. Bureau of Labor Statistics 2020 Consumer Expenditure Report
These numbers may be higher than you anticipated them to be. After seeing prices this high, it’s easier to connect the dots about why so many Americans are struggling to pay their bills and expenses.
What are the Consequences of Not Paying Your Bills?
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Late Fees
A late fee is added to the original bill if a bill isn’t paid on time. If bills are continuously late or unpaid, services can also add repossession fees and collection costs when allowed.
As time goes on, you’ll owe more and more money, making it harder to repay. Do everything you can to pay your bills on time to avoid additional costs and fees.
Disconnection of Services or Utilities
Energy and City services may cancel water and electricity if bills go unpaid, making your day-to-day life even harder for you and your family.
If you are going through a financially challenging time, prioritize the bills for your necessities to avoid the potential disconnection of services or utilities.
Damage To Your Credit Score
Damaging your credit score can have severe short and long-term consequences that many people don’t realize.
It’s more challenging to get approved to rent an apartment or get a car with a low credit score. If you secure a car payment, for example, you’ll likely pay a more than someone with good credit. Moreover, it’s harder to get a loan and you’re likely to have higher interest rates if you get approved for a loan with a lower credit score.
Life can get more expensive if you have bad credit, and it’s hard to break out of the cycle. Paying (or not paying) your bills doesn’t just affect today; it affects your future. To find out your credit score, learn how to obtain a copy of your credit report.
How Can You Prepare for Unexpected Bills?
In 2019, American households had a median balance of $5,300 in their transaction bank accounts, representing how much (or little) households saved.
So, how can you prepare for your upcoming bills? Read these tips to find out.
Make Cuts to Your Spending
In a 2019 study, Ladderlife.com found that Americans spend almost $18,000 a year on nonessentials, yet “38% of Americans claim they can’t afford to fund a retirement plan because they don’t have enough money.”
The moral of the story is that most Americans are spending money where they shouldn’t and not saving when they should.
Yes, it’s important to enjoy life’s little luxuries like a coffee from Starbucks or a meal out with a loved one. However, if you struggle to pay your bills or save for retirement, it’s time to make hard cuts on your extra spending.
Take some time to sit down, get serious about your financial situation, and reprioritize your spending to take care of yourself and your family.
Build an Emergency Fund
An emergency fund is a “cash reserve specifically set aside for unplanned expenses or financial emergencies.”
It’s essential to have an emergency fund. Having this safety net will help cover funds if you lose your job, can’t pay your bills, or have an unexpected expense. You don’t want to be floundering for cash you don’t have. Being prepared helps reduce your financial stress while helping you from going into debt.
Ideally, you should save about six months’ worth of living expenses in your emergency fund so if something goes wrong, you have a cushion to help fall back on. In other words, you won’t find yourself in a situation where you don’t have any funds to pay your bills.
Setting up your emergency fund in a high-interest savings account can also help you accrue more money over time. No matter how much you can afford to set aside each month, any contribution to your emergency fund is a step in the right direction.
Can you Borrow from your Retirement Fund?
On the one hand, some people view borrowing from your 401(k) as an easy solution to financial trouble since there are no loan applications or credit score requirements.
However, borrowing money from yourself has some penalties. Perhaps the most notable, on top of the tax you’ll have to pay, is that you’ll also have to pay a 10% early withdrawal penalty.
Also, frequently taking money out of your retirement means that you aren’t saving as much for your future and could miss out on potential investment gains.
Negotiate Your Bills
Many people are surprised to learn that you can negotiate the price of some bills.
With patience, determination, and confidence, you can lower your monthly payment on your cable, credit card, cell phone, internet, medical, insurance, or rent.
Do your research, set a goal, and start paying less on your bills!
Apply For a Personal Loan
If you find yourself in a situation where you can’t afford to pay your bills, applying for a personal loan may be a good option.
Of course, taking out a personal loan is a responsibility. Making your payments on time is the best way to ensure you don’t incur additional fees.
