During hard economic times and when money is tight, unforeseen circumstances may prevent us from meeting every financial obligation on time. While we all strive to pay all of our bills promptly, sometimes we are forced to choose which payment to make with limited funds on hand.
We’re talking specifically about paying bills here, but naturally you will need to have enough money set aside to keep everyone in the family fed. That doesn’t mean dining out, of course; weathering hard financial times means literally tightening your belt. If you’re not sure you’re going to be able to pay all of your bills, stick with beans and ramen noodles until you get your situation under control.
- Your house payment or rent. Your first bill paid every month should be the one that keeps a roof over your head. Don’t neglect the house payment or rent. If your situation is so bad that you can’t afford your mortgage, talk to a HUD-approved housing counselor right away.
- Utilities. Your second priority should be your utilities, specifically your water bill, and electricity/gas.
- Housing expenses. Any bills related to your home, like insurance, HOA dues, taxes and the like should be paid to ensure you keep your home. Likewise, any home equity loans you have should be high-priority. Anything that can cause you to lose your home should be addressed before your other bills.
- Work-related expenses. Any bill that preserves your ability to earn a living should be a high priority. This includes your car payment if your vehicle is essential for you to get to work. Your phone bill may also qualify here if you rely on it for work.
- Child support. This is an obligation no one should overlook, period. It also preserves your ability to earn a living, because if you don’t pay, you could be arrested. It’s impossible to earn a living from a jail cell.
- Taxes. Another expense that can get you arrested if you fail to pay.
- Student loan payments. Because student loans are backed by the government, they have more power to act against you than typical bill collectors. Ask about applying for a deferment until your financial situation improves.
- Phone bill. If you have both a cell phone and a land line, you may have to choose one or the other.
- Cable/Satellite TV. A lower-priority bill, to be sure.
- Unsecured debts. This includes credit cards, medical bills and the like. These creditors won’t be able to repossess your home or car, and even if they sue it will take some time before they can extract payment. Stick with paying the bills that have immediate consequences for non-payment. Note: Pay higher interest rate debts first. Within this category, prioritize your credit cards with the highest rates and try to get them paid off first.
- Collection accounts. No matter what bill collectors tell you, don’t forego paying higher-priority bills to pay a debt collector. Move this priority up only if they actually sue you and win a judgment in court. Empty threats to sue don’t count.
When financial hardship strikes, you have to get organized right away and look for ways to cut spending. Don’t be shy or ashamed to talk to all of your creditors about your situation; ask for deferments or extensions to give yourself more time to pay. Ask if your creditors can lower your minimum payment, or consider credit counseling to consolidate your debt payments.