Prioritize Your Bills: the Secret to Always Having What you Need
Many circumstances in life can derail even the best money-management plans, leaving us with less than we need to pay the bills. Increasing income and/or reducing expenses can help, but making changes often takes time. However, with a little strategic planning, you can minimize damage until you are back on your feet.
Strategic planning involves both determining which bills are most important, and trying to set up payment agreements for any other bills you are struggling to pay. Monthly obligations may include:
Mortgage or rent
Your mortgage or rent should be the first bill that you pay each month. Would you want to lose your house or be evicted because you were paying your credit cards? Probably not. However, if making payments is impossible, let your lender or landlord know; they may be willing to work with you. Is your mortgage or rent affordable long-term? If not, you may want to look for a cheaper place to live. If you owe more on your mortgage than what you can sell your house for, your lender may be willing to accept a short sale. If you have a lease, your landlord may voluntarily release you from it if you explain your hardship or find a suitable replacement tenant.
If you have a car loan, making your payments on time is critical. In many states, a car can be repossessed after only one missed payment. Repossessed cars are typically sold at auctions for low amounts, and the lender may come after you for the remaining loan balance (the deficiency balance). If you cannot make your payments, call your lender. They may be willing to let you to skip a few payments or accept a repayment plan for delinquent payments. If an agreement cannot be worked out and you cannot resume payments, you may want to sell the car, especially if you have a spare one or can take public transportation.
Utilities. Delinquent utility payments can cause your service to be suspended or terminated, but some utilities are more important than others. You may not be able to, or want to, live without electricity or water. However, you could probably live without cable television. If a service is not needed and cannot be paid, you may want to cancel it before it is shut off. If the service is needed, call the utility company and ask about payment arrangements; you may not have to pay the full amount owed right away. You can also see if the company has any assistance programs for people facing economic hardship.
Borrowers experiencing financial difficulties can often get a temporary suspension of payments through a forbearance or, less frequently, a deferment. What if you can’t get one? The only immediate consequence of not paying a student loan is usually credit report damage, but if you make no payments for 180 days, you are considered in default, with possible consequences including tax refund interception and wage garnishment. However, if your loans are public, you have a one-time right to get out of default with a “reasonable and affordable” repayment plan.
Credit cards and other unsecured debt
If you miss payments by 30 days or more, your credit score will likely drop. If you stop paying long enough, your accounts may be sold to collection agencies, and you could even be sued. Still, the consequences of not paying unsecured debt are less severe than not paying your mortgage or car loan, and most creditors do not take legal action right away. This does not mean that ignoring your creditors is a good idea, though. If making the required payments is difficult, contact your creditors about hardship programs (short-term arrangements that allow you to make smaller payments). When requesting a hardship program, explain why you are facing hardship, and let them know what changes you will make to be better able to afford payments in the future. If requesting a hardship program over the phone is not effective, try sending a letter.
When there is not enough money to pay for everything, it is easy to panic. Don’t. Instead, focus on what you can do. You may not be able to control everything that happens in your life, but you can choose what bills to pay first and how to deal with creditors.
Revised January 2016