Everyday Cheapskate: Which bills to pay first | Hobbies
If you don’t have enough money to pay all your bills, which ones should you pay first, and which ones might slip for a while? This is the question that comes up frequently in my inbox these days. The past year has been so difficult for so many people. And with every request for help I receive, the more my heart breaks for my dear readers who are going through such tough times financially. Then I pull myself together, reminding myself with certainty that “hard times never last, but hard times do.”
Now is the time to be tough, pull yourself together, have a plan, and get to work.
Allowing bills to become overdue is a mistake, but there are times when your available cash can only be stretched so far. This doesn’t mean you’re exempt from payment, just that you need to know how to prioritize in a way that causes the least damage in the long run and keeps you in the best position to eventually catch up.
Even if you’re not in that position right now, it’s good to have a good understanding of how to react, what to do if it happens. Without a reserve plan, you will most likely do the wrong thing with the limited amount of money you have. It’s the old adage that “the squeaky wheel gets the most grease” in play!
Here’s the important rule of thumb: don’t make payments on non-essential debts when you haven’t paid the essential ones, even if your non-essential creditors are the “squeaky wheels” blowing down your neck.
A core debt is a debt that, if left unpaid, could have serious or even fatal consequences. Once you have determined which are the essential debts, prioritize them according to the severity of the consequences you will suffer if you do not pay them:
Necessities of life (food, medical and health insurance)
Going without food, vital medicines and basic health insurance will prove catastrophic. This is your top priority. But don’t eat steaks three times a week when you can’t pay the phone bill.
Rent or mortgage
Always assume that your landlord or mortgage lender will immediately evict or foreclose if you are late with a payment. Falling behind here could put you on the street with the kids and the TV.
Paying court-ordered child support is absolutely essential. Failure to pay can land you in jail.
You may not have to pay the full invoice amount, but the minimum necessary to avoid disconnection should be done where possible.
If a car is needed to keep your job, making the loan or lease payment is the next priority.
Other secured loans
It means something you dare not live without the lender being able to repossess for non-payment.
If the IRS is about to take your paycheck, bank account, home, or other property, you need to put a repayment plan in place immediately.
These are financial obligations that will have a lesser and/or significantly delayed effect if you withhold payment for a limited time. Understand that this can cause imperfections in your credit report. But overall, a blemished credit record is easier to live with than being evicted from your home or repossessing your car.
Most delinquent student loans are guaranteed by the US government and the law provides special remedies for collection. These could include garnishing your tax refunds and special wage garnishment.
Credit, department store and gas cards
The consequences of being late with these debts will be the loss of your credit privileges and, if the debt is abnormally high, you could be sued.
Loans from friends and relatives
You should feel a moral obligation to pay, but these creditors are likely to be the most understanding of your situation. Have an honest conversation, explain your situation and plan, then confirm your commitment to repay in full.
Medical, legal and accounting bills
Although these debts are real and will eventually be paid, they are rarely essential, with one exception: if you are still receiving the necessary care from the supplier to whom you owe money, you must meet minimum payments to avoid that these services are cut off. disabled.
Other Unsecured Loans
Any other debt you owe probably falls into this category. These unsecured debts are rarely, if ever, essential to pay off first.
This column was an update to a column originally published in 2012. Mary invites you to visit her at EverydayCheapskate.com, where this column is archived with links and resources for all recommended products and services.
Mary invites questions and comments at https://www.everydaycheapskate.com/contact/, “Ask Mary”. This column will answer questions of general interest, but letters cannot be answered individually. Mary Hunt is the founder of EverydayCheapskate.com, a frugal living blog, and the author of the book “Debt-Proof Living”.