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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.
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.
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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