What are arrears anyway?
Arrears are when you owe money that’s already due. They’re when you’ve missed payments you were supposed to make. The amount you haven’t paid yet is your arrears.
Types of arrears
There are different kinds of arrears depending on what you owe money for:
Rent arrears
If you rent your home and don’t pay rent on time, those missed payments become rent arrears. Your landlord expects to receive the rent by a specific date each month, and any rent not paid by that date is rent arrears.
Mortgage arrears
When you have a mortgage, you borrow money to buy your house and have to pay some back each month. If you miss those monthly mortgage payments, the missed payments are mortgage arrears. The bank gave you all that money upfront and wants steady payments to get their money back. You missed mortgage payments equal to mortgage arrears.
Tax arrears
Everybody has to pay income, property, and all kinds of taxes. When those taxes are due, and you don’t pay them, you’ve got tax arrears. The government says, “Time to pay up. ” If you don’t, that’s tax arrears.
Utility arrears
Utility bills for electricity, gas, water, phone service, and all the utilities you need are due monthly. You’ll have utility arrears if you don’t pay your utility bills. The utility companies provided the services, but you’re behind on paying. The amount you owe them is in arrears.
Loan arrears
Anytime you get a loan, whether a car loan, a student loan, or a personal loan from the bank, you agree to pay it back bit by bit over time. If you fall behind on those payments, you’ll have loan arrears. The bank or lender will be expecting those payments. If they don’t get them, the loan is in arrears.
Child support arrears
After a divorce, there’s often child support to be paid. The parent who doesn’t have custody usually has to pay an amount each month to help with kid expenses. You missed those payments, and you’ve got child support arrears. The custodial parent and the court expect that money for the kids. When it doesn’t come, that’s child support arrears.
Alimony arrears
Alimony is money one ex-spouse has to pay the other after a divorce. If the paying spouse doesn’t have the cash, they’re in arrears. The ex is legally owed that money. Not paying equals alimony arrears.
Consequences of being in arrears
Being in arrears, it’s no joke. It means you’re not paying the money you’re supposed to pay. There can be severe consequences:
Late fees and interest
First off, expect to pay extra for being late. Late fees, they’ll get tacked on when you’re in arrears. And any interest that’ll keep growing is the amount you owe. The longer you’re in arrears, the bigger those fees and interest charges will get.
Legal action
The people you owe money to can decide to sue you if you’re in arrears. They can take legal action and take you to court to get a judgment against you. If they win, that judgment lets them do things like garnish your wages or put liens on your property. You might have to pay their legal fees, too.
Eviction
Your landlord can give you the boot if you’re behind on rent. Enough rent arrears can lead to eviction. The landlord can legally kick you out for not paying. They need that rent money, and if you’re in arrears, they can use the law on their side to push you out and get a paying tenant in.
Foreclosure
Have you got mortgage arrears piling up? The bank could foreclose. They can take back your house if you fall too far behind. If you fail to pay, the bank can take the home to cover your debts. Foreclosure is the bank’s way of cutting losses when you’re deep in arrears.
Repossession
Vehicles can get repossessed if you don’t make the payments. IfThe lender can take that car away ifhere are arrears on your car loan, They’d rather have the car than wait for money you’re not sending. Repossession is how they deal with arrears.
Service disconnection
Utility arrears can leave you in the dark, literally. The utility companies can cut you off if you don’t pay. They’ll fall too far behind, pull the plug, turn off the tap, and disconnect your service. Those arrears mean they can refuse to keep supplying the utilities until you catch up.
Damaged credit
Not paying bills or loans can trash your credit. Arrears get reported to the credit bureaus and end up on your credit report. Lenders, landlords, and employers might see that and decide you’re untrustworthy. Lousy credit from arrears can haunt you for years.
Dealing with arrears
If you find yourself in arrears, don’t panic, but don’t ignore it either. The sooner you deal with it, the better.
Contact your creditors
Reach out and talk to the people you owe money to. See if they’ll work with you on a payment plan. They’d often instead get some cash from you gradually rather than have to chase you down. Communicating with your creditors can stop things from escalating. They might cut you slack if you show you’re trying to tackle the arrears.
Seek debt advice
Some organizations and services can advise you on handling debt. They can help you figure out your options and make a plan. With arrears, expert advice can be a huge help. A debt advisor can advocate for you with creditors and help you navigate the situation.
Prioritize debts
Focus on the most crucial bills first. Top priorities are rent, mortgage, taxes, child support, and keeping the utilities on. Unsecured debts like credit cards or personal loans are lower on the list. Knowing which arrears to attack first is critical.
Increase your income & trim expenses.
You can pick up extra shifts or a side gig to bring in more cash. At the same time, cut your spending where you can. Cook at home instead of eating out, cancel subscriptions you don’t need, and find free entertainment. Boost your income and lower your outgoing money to chip away at those arrears.
Consider debt consolidation
Sometimes, getting one big loan to pay off many smaller debts makes sense. Debt consolidation can lower your monthly payments and help you manage arrears. It’s not the solution for everyone, but it can sometimes help turn arrears around.
