Seven Steps to Take if You're Late Paying Bills

May 19, 2009— -- It's a situation all too familiar to millions of Americans these days. After years of hard work, a sudden job loss, pay cut, furlough or simple over-reliance on debt has left too little cash on hand to pay the monthly bills. More than 13 million people are currently in hock to collections agencies or are seriously considering bankruptcy, according to a recent report by the National Foundation for Credit Counseling.

If you find yourself falling behind on your bills, there are several steps you can take to help reduce the amount of money you owe and help preserve the assets you still have. Here's a rundown.

1. Know where you stand. It's important to face up to the problem, rather than tucking threatening letters into a desk drawer. Begin by assessing your complete financial situation. That means tallying up your total income after all taxes and other deductions. Then compare it to your monthly obligations, including housing and car payments, credit card bills and other debts. Add discretionary items, like how much you spend on entertainment and restaurants.

Click here for a get out of debt checklist at our partner site, Forbes.com.

If your income doesn't match, or exceed, how much you're spending, it's time to make some tough choices. That's what one New Jersey couple realized it had to do.

"One party was unemployed and the other was working, but they were living on credit cards that were close to being maxed out," says Michael Kay, a financial planner in Livingston, N.J. "When all was said and done, they had to sell their home, even though it wasn't the best time to do so, to get out of debt."

2. Negotiate with creditors. If the math indicates you're going to have a hard time covering your debts, talk to your creditors before resorting to more desperate measures. If the loan is still held by your bank or original lender, it may be willing to negotiate a temporary solution.

"Your bank or a credit card company has a strong incentive to try to work things out," says Ted Beck, the head of the National Endowment for Financial Education, a nonprofit organization that focuses on personal finance.