How do you build a budget when you are already behind?
In short
Start by separating essentials from everything else, then rank what remains: shelter and utilities first, secured debt second, unsecured debt last. Call each creditor to ask what hardship arrangements they offer. Free federal budgeting tools and a non-profit counsellor both cost nothing.
Updated
What comes first?
Shelter, utilities, food, medication and the transport you need to earn come before any debt payment. A plan that starves those to protect a credit score fails within two months, and it fails worse than the missed payment would have.
Which debts do you pay first?
Secured debt comes before unsecured, because the asset is at stake. Among unsecured balances, paying the highest interest rate first costs you the least overall. Tax debt and child support have their own enforcement powers and should not be left to last.
What should you ask creditors for?
Ask specifically what hardship arrangements exist: a reduced payment for a fixed period, an interest freeze, or a deferral. These are unpleasant calls and they are also the cheapest thing you can do. Nothing about asking obliges you to anything.
Frequently asked questions
- Is a free budgeting tool good enough?
- For most households, yes. The Financial Consumer Agency of Canada publishes a free budget planner, and a non-profit counsellor will review the result with you at no cost. Neither charges you anything.
- When is a budget not enough?
- When the arithmetic does not close: essentials plus minimum payments exceed income even after cuts. At that point the problem is the size of the debt, not the budgeting, and the other routes are what address it.
- Should I use savings to pay debt?
- Keep a small buffer before clearing balances. Emptying savings to pay a card usually means borrowing again at the first unexpected expense, which leaves you worse off than when you started.