Reader Question: I Can’t Pay My Bills! What Bills Should I Pay First?
Posted on
Tue, 28th August, 2007 by
Jeremy
When times are tough and you can’t find the money to pay all of your expenses, where do you turn and how do you decide who gets paid? Of course, in a perfect world we would all have sufficient emergency funds to cover these types of situations, but many people are faced with this question every month and don’t have the money saved up. While you may incur late charges or possible dings to your credit score, there are priorities you can set to ease the pain as much as possible.
1. Housing comes first. This is especially true if you own a home. Your mortgage payment should be at the top of the food chain. Your home provides shelter, it is one of your greatest assets, and it is a great mark to have on-time mortgage payment history on your credit report. Above all, make sure you are making those payments. It wouldn’t make sense to go into default because that cell phone bill you just paid required your mortgage to be paid late. Your housing expenses should also include any insurance, which may be part of your mortgage payment anyway. If not, it should be a top priority as well.
2. Don’t forget taxes. I’m not just talking about Uncle Sam, but this includes property taxes as well. If you are employed, chances are you are already paying taxes on a regular basis, but if you are under-withholding you could be faced with a steep tax bill at the end of the year. Your best bet is to have the right amount taken out of each pay check, but if that isn’t possible or you find yourself owing taxes, don’t delay in filing or paying. The same thing goes for property taxes. Failure to pay can put a lien on your home.
The penalties are stiff, and the IRS has no problem garnishing your wages or taking property to get their money. The good news, at least with the IRS is that they do have options available to assist when you can’t pay your taxes. Using an installment plan or reaching an agreement with them should be a last resort, but they are options.
3. You better make those car payments. The next item in line, especially if you require it to get to work every day, is your auto loan payments. Again, this is a secured loan, which means if you fail to make payments on time, not only can it affect your credit, but they can recover the property. Losing your primary means of transportation could cost you your job if you don’t have an alternative. Without a job, you’ll never be able to pay the bills. If being unable to pay your bills is a recurring theme, this is one of the first places to look at cutting costs by finding a cheaper vehicle. Auto insurance should be lumped in with any loan payments and considered just as important.
4. Begin looking at credit cards. Once you have secured your essential payments for your housing, tax obligations and transportation, you can begin looking at paying those credit card bills. Obviously, you want to stay current with these so you can keep your credit report clean, interest rates low, and avoid late fees. Don’t jeopardize your home or other things listed above just to try and avoid a late fee or negative mark on your credit score.
If you do have money left over to put toward credit card bills, pay at least the minimum. If it takes minimum payments on 4 different cards just to make all of the payments, then do that. It is better to only pay the minimum and keep the account current than to try and pay more and end up short on another card and have a late fee tacked on.
If you don’t even have enough money to make the minimum payments on all of the cards, you have to prioritize. First, realize that if you can’t make the payments, you’re going to be late and there are consequences. The best you can do is try and limit the negative impact. First, check to see if there are any grace periods on any of your cards. You may be able to squeeze a few extra days until payday and still avoid a late payment. If that is of no use, you’re probably going to want to look at the card with the highest balance. The reason is that if you’re late, they are likely to increase your interest rate. 29.99% on a $5,000 balance hurts a lot more than 29.99% on an $800 balance.
Finally, remember that late payments typically aren’t reported to credit bureaus until they are over 30 days past due. You may still have a late fee or a change in interest rates, but if you’re a few weeks late you’ll probably still keep that credit report free of a late payment mark. And, if it is your first late payment with that issuer, a phone call may actually get the fee removed or the rate dropped back down. Unfortunately, if you make this a habit, don’t expect any relief.
5. Utilities are often the last resort. You may think that keeping the lights on would be a top priority, but in reality you have the most latitude in making payments compared to the rest of the things on this list. First, many utilities are optional and aren’t a necessity to life. Things like the cable and telephone are good examples. If you fail to make your cable payment, they shut it off and possibly report it to the credit bureaus. Losing cable is better than losing a home or having your wages garnished.
When it comes to the more important utilities, such as electricity, sewer, water, or gas, you will want to try and make these payments, but doing so late might not be as bad as being late on a credit card. Most electric or gas companies have very low late fees, and in some cases it may just be a couple dollars. On top of that, it generally takes an extended period of being late before service is actually shut off. The best thing to do if you find you are unable to pay the electric or gas is to call your provider and explain the hardship. Most offer assistance or special payment plans for those in financial need.
When it comes to something such as sewer, you may actually have to place more importance on that bill. In some places, being late on your sewer bill could eventually result in a lien on your property, so be sure to check and see if that applies. But with most utilities you’ll pay lower late fees than you would on a credit card and they are much more flexible when it comes to being unable to make payments, so most utilities should be one of the last items to pay.
Final Thoughts
As always, you should be trying to make all of your payments on time and in full, and this shouldn’t imply that it is good practice to make late payments, but the reality is that there are times when that just isn’t possible and you have to make the best of it. Also, keep in mind that these are just general guidelines. If your situation involves alimony or child support payments or such, these could take priority given the legal implications, so you have to analyze your situation carefully.
In the end, if being unable to pay your bills is becoming a regular habit, it is time to sit down and think about why this is and make some changes. The occasional emergency happens, but when it happens every month and every year, you need to really take a look at your situation to get out of that rut.
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First off I love the site and everything you talk about, keep up the good work.
I agree with a lot of what your saying but don’t think the order is correct.
1. Housing - agreed.
2. Food - Family needs to eat.
3. Utilities - I do agree that the phone/cable/extra’s aren’t needed but keeping the lights, gas and water on are very important. From experience it cost’s a lot to have these turned back on. Change the way you do landry, keep the lights on, temperature of the house to help cut costs.
4. Car - Sell the car and get a cheapo if possible, look into alternatives like bus/bike/etc to help save money here.
5. Credit cards - Credit score is the least of your concern if money is tight and the other areas are far more important than keeping a good credit score. I agree with paying the minimum at worst but only after the rest is done first.
I’ll deal with the credit cards but only after my family is taken care of first and foremost. I didn’t put taxes in there, it needs to be as well and I would put that above credit cards.
This is just my take on it.
Thanks, Brent. Food is very important, and I didn’t include that because it generally isn’t a “bill” that has to be paid. Most people are going to be buying food and other necessities regardless of what bills are due that month.
And yes, the utilities are important, but in most cases you can often go as long as 90 days before they are shut off. Clearly you want to avoid that, because as you said, it can be expensive to have them turned back on, but there is enough lag time between the due date and actual shut off that you should be able to address more important concerns first.
But you make a good point about credit cards, I think people can get their priorities out of order. There is so much stress and talk about maintaining a good credit score that some people will literally try to pay those before other vital expenses just to avoid hurting their credit.
Sure, bad credit can be costly, but having an accident when your insurance premium wasn’t paid or ending up losing your home will ruin your life a lot faster than a late payment on your credit score.
I think the housing from it’s also worth negotiating with the bank and landlord, both prefer getting some kind of payment rather no payment at all…
Interesting post. I have to agree with most of it especially how cable is not a necessity like electricity is. And for many of us working in technology, the electricty and internet access are essenatials to stay employed.
Right, everyone will have slightly different priorities. If you rent instead of own and have a good tenant history, you may have some compromise on rent.
And just like Webomatica said, you may be in a situation where your computer and internet connection at home may be vital for your job.
Food, gas, lights, water should always be first, then house/rent.
For as car note and credit card bills, I’m not sure because it is best to not have cc debt or a car note. Pay cash for items to avoid juggling later which need to be paid.
Let me just say this post rocks. About 12 years ago we were in this situation. We made abotu $2k/month collectively and it was very tight and I wish we would have been educated about this because our credit suffered and well it took 7 years for it to not be an issue anymore. A hard lesson to learn when you’re just starting out in life.
What a frightening post! Earlier this week that I’m one paycheck away from being homeless…so this is really hitting home…I really need to add to my emergency fund.
Hopefully you don’t ever need to choose what bills to pay first, but in that event you do need to prioritize. This prioritization however, should only be a short term fix. You should ultimately pusue ways of lowering your expenses (any and all).
It’s hard to prioritize! Someone who can’t pay all the bills shouldn’t be thinking about which bills to pay first but should be thinking how to reduce them first which is more important. Otherwise, the situation is just going to get worst.
Agreeing with Moneymonk here. It’s better not to have to choose, but if you do, things like worrying about your credit rating and CC rates become secondary. Food, Housing/utilities, and then things necessary to get a job become top priorities. Worry about other things later.
I was wondering what happens if a signature loan goes into default?
I am very tight right now, after paying housing, car, gas, the needs.
I just don’t have enough to spread it out to all the rest.
A signature loan is just an unsecured loan. That means if you default on it, it will eventually go to collections. Then you will be hounded by a collection agency that tries to get you to pay. By now this will all be on your credit report, and you are still on the hook for the money.
You should still pay your essentials first, such as housing, vehicle, or anything else that is secured by an asset. But while any unsecured debt may not be directly tied to an asset, it is possible for a company to legally seek out the collection of the debt, which could include judgments, garnishment of wages, etc. Still not a good situation, but at least they won’t be repossessing your house or car because you’re behind on payments.
i have 3 Credit cards and only get paid 530 get paid every 2 weeks and i have a house payment which is 417.06 what do i do about the credit cards i can’t even make a payment at all on my credit cards
After struggling for the last year I find myself finally at the end of my resources and have to make some hard choices. I am psychologically ready to take the credit hit and understand the implications of not paying my credit cards - but I’m wondering would it help any to make some effort to pay even if it is not the minimum every month? Mostly I’m scared they can come take my house (in our state homes are not protected, for example if you declare bankruptcy - so that is not an option for me).
I am beyond the beyond with financing and being retired on a fixed income! I maxed out 14 credit cards and chose not to go bankrupt but went into debt negotiation. That takes 555.00 every month, then my house payment 786.00, then my gasoline bill about 150.00 a month. Now my car needs a 1000.00 dollar part to be reliable and I must have a good car for all my doctor appointments, I do not do pleasure trips. That car repair blew all my savings! Now I have nothing to live on till the end of the month when my checks come in. I cannot use credit cards anymore either. I am screwed!