Prioritize Your Bills
If you are being hounded by creditors or are simply stressed out by debt it can be easy for you to lose sight of your priorities. As panic is the main mode when you are in a financial crisis you might find yourself paying whoever is complaining the most first rather than paying other more important bills, such as the rent or mortgage. It is quite common for people to be facing eviction or foreclosure over a bill that could have been postponed without major consequences or wiped out in a bankruptcy court.
That’s why it’s so important to get creditors off you back. You need to be the one to decide how and when your bills are paid without interference from pushy collection agencies so they don’t distort your perspective of your priorities.
Once again, as described in the first part of this guide you will be dividing your bills into three categories –
1. essential bills
2. important bills
3. non-essential bills.
Essential bills are the ones that if you didn’t pay would result in a catastrophe related to your very survival
Here are some examples of essential bills –
Essential Bill Consequences of Non Payment
Mortgage or rent Foreclosure or eviction
Home Equity loans Foreclosure or eviction
Lines of Credit Foreclosure
Groceries Starvation
Utilities Absence of heat, water, lights, phone or computer
Car Payments Lost job
Essential Medical Death or serious illness
Child Support Jail
Important bills are the ones that you should pay if at all possible because the consequences could also be quite direct –
Important Bill Consequence of Non Payment
Income taxes Wage garnishment, loss of tax refund
Court Judgments Wage garnishment
Student loans Wage garnishment, loss of tax refund
Secured loans Repossession of property
Auto insurance Loss of license, fine
Medical insurance Catastrophically high medical bills
Non-essential bills are the ones that aren’t secured by property. The list below includes debts that should be your lowest priority during a credit crisis. In no way is it being suggested that you not pay them.
Non- Essential Bills
• Credit cards
• Department store cards
• Gas cards
• Medical bills
• Legal bills
• Personal loans
• Loans from friends or family
Of course you might have other bills not mentioned above so categorize them to the best of your ability. Then for each bill in the Essential and Important Bill categories list the following –
• The monthly payment you always make
• The minimum monthly payment you need to make to stay current
Now compare those expenses to your monthly net income (what you get in your paycheck after all the taxes and other deductions have been taken off.) Are you able to cover the minimum payments required in the Essential and Important Bill categories?
If not you might have to consider some last-ditch cost cutting measures. Here is a list of things you can immediately due to reduce your costs
• Ask for forbearance on student loans due to financial hardship
• Negotiate payment plans with the IRS due to financial hardship
• Go to court to reduce child support payments due to financial hardship
• Talk to your lenders individually and try to negotiate lower payments
• Increase your pay check by eliminating or reducing 401k contributions
If you still can’t pay your Essential and Important bills you might have to take some last resort action such as selling a house or moving to a cheaper apartment. You might also need to consult with a bankruptcy attorney about wiping out non -essential debts that may not get paid.
If you have money left over however you can pay the minimum payments on your nonessential bills and make even progress towards your goal of getting out of debt and improving your credit score.