Debt

When You Can’t Pay Them All – Deciding Which Bills to Pay First

This is a guest article by Daniela from Credit Donkey.  If you are interested in contributing to Debt RoundUp, please follow our guidelines.

final notice stampIf you’ve hit a wall financially and can’t afford to pay all your bills this month, you may feel panic rising.

The “what ifs” may start crowding in. What if you get kicked out of your apartment? What if you have to eat nothing but Ramen noodles for a year? What if you lose your car? What if your children end up on the streets?

Calm down. For most people, financial crises can be overcome with proper planning and hard work to get out of debt.

The first step in the path back to stability is deciding which bills to pay first.

It’s All About Priorities

The Maine Volunteer Lawyers Project lists bill paying priorities pretty succinctly. Start with the bills that are essential to living. First, pay for essential food and medical expenses for your family. Then, put a roof over your heads by paying the mortgage, rent, insurance, fees, etc. Next, pay for essential utilities, like water, heat, and electricity. (Skip the cable bill, please.) After that, pay for car loans or leases, and then for other essential-to-living expenses.

After you’ve taken care of the bills you need to just keep a minimal standard of living, focus on medium priorities: debts that will offer serious consequences if you don’t pay on time. Pay attention to late fees.

If your late payment will cause a serious fee or dramatic consequences – like a huge hike in your credit card APR – pay those first. Also, pay attention to student loans. Because they’re backed by the federal government, consequences for falling months behind on student loans can be dire. Plus, they can’t be wiped out in bankruptcy, should your financial situation come to that.

Finally, worry about non-secured debts, like credit card debts and even doctor’s and attorney’s bills.

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Making Partial Payments

Sometimes, you can negotiate for making partial payments on some bills. This can save you from harming your credit, especially if you negotiate with your creditors as soon as possible – preferably before you’ve even missed a payment.

When it comes to student loans, especially, you have lots of repayment plans. If you just lost your job or are otherwise in financial straits, check out the student loan repayment options, or consider putting your loan on forbearance or deferment for a while.

Credit card companies, too, are likely to negotiate with you for lower payment terms if you absolutely can’t make your minimum payments. Why? Because they know if you go super late and eventually file for bankruptcy, they probably won’t see a dime. They’d usually rather negotiate with you so that they get some money now and eventually everything that you owe them.

Accounts Past 30 Days Late

When you’re prioritizing your payments, check to see if you have some accounts that are already late. For the most part, payments that are 90 days late will have the biggest negative effect on your credit score.

Your credit score will take less of a hit if you can juggle some of your less-important payments to make sure that nothing goes ninety days late – even if that means that everything is thirty days late at some point.

house on calculatorDeciding to Short Sell Your Home

One of your most important payments to make on time is your mortgage, but if you pay your mortgage and don’t have any money left for other important payments, what do you do?

If your hardship is likely to be temporary, contact your mortgage company ASAP. Often times, they, too, will work out a payment plan to help you catch up. Otherwise, though, you may consider short selling your home. In order to short sell, you have to be behind on payments, though, so you have to stop making mortgage payments.

But if you have to stop making your mortgage payment in order to put food on the table and gas in the car to get to work, you may just have to do that. It’s a difficult decision, and not one you should take lightly.

Cut the Fat

If you do find yourself in this situation for any length of time, it’s time to reexamine your budget. Maybe you’re overspending in some areas, or could simply do without until you get back on your feet financially. Look at cutting out or cutting back on all the non-essential bills, such as your cable bill, internet bill, and even cell phone bill.

The faster you can cut back on your spending and pay down some of your debts, the better you’ll be able to stay on top of your bills so that you don’t have to decide which bills you can pay and which you can’t.

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23 Comments

  1. March 26, 2013 at 7:10 am — Reply

    I have never been in the position of not being able to pay my bills. However, I do agree that food and medical care should be first…especially if you have kids!

    • Grayson
      March 26, 2013 at 9:42 am — Reply

      I have not been in that position as well. I have had too much credit card debt where I could only afford to pay the minimum, but I changed that.

  2. March 26, 2013 at 7:11 am — Reply

    Great post, and I wrote about a similar topic (not having enough money to pay all the bills). Prioritizing what bills to pay is so important in these scenarios – having a plan can take some of the stress away.

    • Grayson
      March 26, 2013 at 9:42 am — Reply

      Priorities are very important and necessary in situations like this.

  3. March 26, 2013 at 8:16 am — Reply

    Great post. Lots of good info here! Thanks!

    • Grayson
      March 26, 2013 at 9:42 am — Reply

      You are always welcome Laurie

  4. March 26, 2013 at 8:18 am — Reply

    Good post! I found myself in this situation years ago when I racked up all of my credit card debt. I would agree to focus on the essentials to living and move on from there. While it’s nice to be able to pay towards any credit cards I tend to think that the non secured debt should be near the last things to be paid if you’re in dire straits.

    • Grayson
      March 26, 2013 at 9:43 am — Reply

      Non-secured debt should always be first on the chopping block.

  5. March 26, 2013 at 9:07 am — Reply

    If you have good credit, take out a loan from Lending Club or Prosper. The best interest rates are around 6%. You’ll be consolidating everything into one convenient payment and have between 1 and 5 years to pay it off.

    • Grayson
      March 26, 2013 at 9:39 am — Reply

      Good tip Mr. 1500! Lending Club and Prosper are great alternatives.

  6. March 26, 2013 at 9:10 am — Reply

    I think the first thing to go would be any credit card payment, phase one minimum payment, phase two, go for 30 days late. The mortgage and car payments would get priority although i would probably sell one of the vehicles first. It’s an ugly situation no matter how you tackle or prioritize it!

    • Grayson
      March 26, 2013 at 9:43 am — Reply

      It is never a good time when you have to decide which bill to pay, but that is slowly becoming commonplace these days.

  7. March 26, 2013 at 9:50 am — Reply

    We would definitely cut out all extra and focus on the necessities. Great post!

  8. March 26, 2013 at 11:26 am — Reply

    I think one of the most important things people need to remember is to stay calm. When you’re in a situation like this, things already seem bad, no need to make them worse by panicking. Don’t rob from Peter to pay Paul, don’t wallow in self-pity, stay disciplined and make the tough choices…all those things are extremely important. however, if you allow yourself to get excited and too worried about the situation, you’re never going to make it.

  9. Dave@Your Financial Future
    March 26, 2013 at 1:05 pm — Reply

    Nice information for those in this situation for which I feel ever so sorry for!

  10. March 26, 2013 at 5:24 pm — Reply

    If I had consumer debt I would be cutting our budget down to only what we need. I would first make sure that the mortgage was paid and then look at my other debts. It’s a tough call. Great post.

    • Grayson
      March 26, 2013 at 9:32 pm — Reply

      I would do the same thing Mr. CBB. I would cut the fat and go as lean as possible.

  11. March 26, 2013 at 8:02 pm — Reply

    great tips. Hope I never have to use them. I would start by cutting the fat before anything, it could give you enough breathing room to pay the rest. And if you skip cable payments you still owe, whereas if you cancel you don’t.

    • Grayson
      March 26, 2013 at 9:31 pm — Reply

      I second the cancel cable part. I did it and feel better about not getting that bill.

  12. Justin
    March 26, 2013 at 9:47 pm — Reply

    If you cannot afford to pay for something, start with M’s hierarchy of needs. The basics like food, shelter and safety first. Then worry about credit card companies.

    • Grayson
      March 26, 2013 at 10:35 pm — Reply

      I like the simplicity Justin. Thanks for the comment.

  13. April 7, 2013 at 2:40 pm — Reply

    priority 1- things you can’t live without. like electricity
    priority 2- things that will charge the most interest or have the worst impact on your credit score if you don’t pay them.

    That’s my point of view..

    • Grayson
      April 8, 2013 at 9:44 am — Reply

      I agree with you there Ron.

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