You’ve lost your job or for some other reason don’t have enough money to pay all of your bills. Which bills should you pay first and which ones can slide for a while?
Here’s a basic rule of thumb according to the Boston-based National Consumer Law Center in its book, Surviving Debt:
“Always pay essential expenses and debts first. If any money is left, you can decide which nonessential debts, if any, to keep in your expense budget.”
An essential debt represents a serious obligation that if not paid could produce severe, even life-threatening consequences.
Do not make payments on nonessential debts when you have not paid essential ones even if your nonessential creditors are breathing down your neck. Keep your priorities straight.
Please do not misunderstand! I am not suggesting that you should just walk away from your financial obligations. You must pay your creditors, you must pay your bills. To not pay them is not an option.
Of course, it is not ideal to let some of your bills slide for awhile. But your situation is what it is. Your resources are severely limited. In time, as things improve (they will) you will be able to get caught up completely.
But for now, you need to know how to get through this month.
Once you’ve determined which bills are essential, prioritize them according to the severity of the consequences you will suffer for non-payment.
Here is a guide to follow, listed by priority.
This means basic food and unavoidable medical expenses including health insurance. Even though essential, keep these expenses to the absolute, bare-bones minimum. You don’t eat steak three times a week when you can’t pay the water bill.
Rent or mortgage
Always assume that your landlord or mortgage lender will immediately proceed to evict or foreclose if you are late with a payment.
Next, you should pay the minimum required to keep the heat, lights and water utility services. Your cable and Internet bills are not essential utilities. You should probably cancel them for now. Temporarily use the computers at your local library if you need to be online.
If a car is necessary to keep your job; making the loan or lease payment is the next priority.
Paying child support is absolutely essential. Not paying can land you in jail. You have no options here for allowing this to slide or to go unpaid.
Other secured loans
Beyond your home and car, debts on furniture, boats, RVs and expensive electronic gear are likely to be secured—that means the lender can repossess for nonpayment. While you are in the process of selling these items to get out from the heavy debt load, you must keep current on all payments.
Unpaid taxes If the IRS is about to take your paycheck, bank account, house or other property, you need to set up a repayment plan immediately.
Nonessential expenses and debts are financial obligations that will have a lesser and/or significantly delayed effect if you withhold payment for a limited time. To delay paying on these is called “breathing room; it’s not a pass. It’s a short period of time while you figure out what to do. Here they are in the order of severity of consequences if you fall behind:
Failure to pay your student loans could eventually include, at the worst, seizure of your tax refunds and special wage garnishment. If you let this slide for a few months, expect to be charged penalty fees.
Credit cards, department stores and gasoline cards
If you fall behind on these debts you will trash your credit score, lose credit privileges, pay horrendous late fees and—if the debt is unusually high—you may be sued. But you won’t lose your home. You can recover.
Personal loans from friends and family
You should feel a moral obligation to pay, but these creditors will likely be the most understanding of your situation. Don’t hide. Do the right thing and contact this person immediately to set up a face-to-face meeting.
Medical, legal and accounting bills
While these debts are real and will be paid eventually, they are rarely essential unless you are still receiving treatment.
Every other debt you owe is probably in this category. These unsecured debts are rarely, if ever, essential enough to pay first.
During the devastating time, don’t allow your emotions to dictate how you distribute the money you have. And do not let your creditors set the agenda. Do not hide, do not lie. Above all, do not take your situation personally.
Adopt a business-like mindset and treat your creditors as you would want to be treated if the tables were turned. Be courteous and respectful yet assertive. Do not make promises you cannot keep. And when your situation turns around (it will!) keep the promises you have made to your creditors, your family, and to yourself.
As you get through this season of our life, never forget: Tough times never last, but tough people do!
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