COVID + Credit: Which bills to prioritize when money is tight
It’s the end of the month and you don’t have enough in the bank to pay your bills, how can you prioritize? [Duration- 2:27]
Time to read: 6 minutes
While you should do your best to pay your bills on time every month, sometimes, like now, that isn't always possible. If you find yourself in a tight spot financially, you may have to make hard financial decisions about where to channel your available resources. Thinking through which bills to prioritize when money is tight can make a huge difference to your long-term financial recovery.
The bills you choose to pay on time and the ones you decide you can delay will depend on your specific financial situation, but this article can help you organize what you owe and think about which payments should generally take priority.
1. Prioritize the basic living necessities first
Your health and safety are the top priority in any tough financial situation. So, it's important to guarantee that you have shelter for the next month by paying your rent or house payments and making sure you have food on the table.
Additionally, if you require any daily medication or other medical treatment, aim to keep your prescriptions up-to-date and avoid skipping needed care. Getting back on your feet will only be more difficult if you're unwell.
If you find yourself unable to pay your mortgage for an extended period, it may be time to look into more substantial, long-term solutions, such as refinancing your mortgage or applying for government assistance. The U.S. Department of Housing and Urban Development (HUD) sponsors housing counselor agencies nationwide that offer free of low-cost assistance to homeowners in need. Take a look at HUD.gov for more information.
In addition to housing needs, securing necessities like water, heating and electricity is a must for health and safety. However, sometimes you have a month or more until your services are completely shut off, so pay utilities after you've secured rent. If you can't afford all of your utilities, consider dropping internet service or downgrading your mobile phone plan before skipping other utilities.
2. Ensure you have transportation to your place of employment
After you pay the bills crucial to your physical health, focus on work-related bills. If you need a car for work, it's important to pay your car payments on time. Even one missed payment may lead to your car getting repossessed.
If your car does get repossessed, your rights vary by state. You can learn more about the repossession requirements of your state by contacting your State Attorney General or local consumer protection agency.
Additionally, necessary car payments also include car insurance. In some states, letting your car insurance lapse can lead to a license suspension or an arrest.
If you need your car, be sure to pay both your car payments and insurance. Losing your source of transportation due to a financial hardship will make it harder for you to get to work, the grocery store, the doctor or wherever else you need to be.
3. Make sure to cover any owed child support or alimony
You should also be sure to keep up with any child support that you may owe. Failure to pay may result in a suspension of your driver's license in all 50 states, or even your arrest. Your pay may be garnished, you may have your tax return seized, or you may have a lien placed on your property. Most seriously, if you fall more than $10,000 behind on your payments, you could face a felony charge if you have otherwise made no attempts to pay.
If you find yourself struggling to make child support payments and have a positive relationship with your co-parent, reach out to them and explain your situation. In some instances, they may be able to work with you to delay or adjust your payments until you're more financially stable and able to pay them back. You can also contact the Division of Child Support services in your state. In some cases, you might be able to change your monthly payments to something more affordable.
Similarly, if you owe alimony payments, do your best to avoid falling behind as missed payments could result in a civil court case. Generally, if you can only pay one, it's better to prioritize child support as the consequences for missing payments are often more severe.
4. Try to keep up with student loans, personal loans and tax debt
If you're in a situation where you have to delay some part of your finances, it's usually better to pay toward loans only after your day-to-day expenses are covered.
The good news is, that when it comes to federal student loans, you may have repayment options available and you are often able to change your repayment plan for free. Some plans are based on your current income and may allow you to defer payments. To learn more about your options, read our articles on deferment, forbearance and rehabilitation.
However, on the flip side, since student loans are backed by the government, the government has more options than an average collector to make you pay. If you default on your student loans, the Department of Education can garnish your wages or seize your federal tax refund.
If you have other personal loans, do your best to keep up with them after your student loan needs are met. Personal loans typically have extremely high interest rates, much higher than student loans or credit card debt, so letting them go unpaid means they're likely to rack up a lot of interest and make it that much harder to pay down the principal.
Though not as common as other types of debt, if you're paying off tax debt to the IRS, do your best to keep up with payments on it regularly.
Catching up with the bills you missed
Ultimately, if you're faced with a significant financial setback, there may be times when you need to delay your monthly payments and debts. But it's extremely important to remember that while you may delay payment, you cannot stop payments altogether. You will still be responsible for paying back what you owe, potentially with additional interest or late fees.
If you do delay payments, it's important to catch up as soon as possible.