We all want to pay our bills. After all, most people don’t get a great feeling watching debts accumulate. But things happen unexpectedly and suddenly, and sometimes you can’t make payments for everything on time.
A few years ago, I moved to New Orleans, and the move seemed to spark a series of unfortunate events. During the first week, I blew a tire. I received two traffic tickets. Then I dropped my cell phone off of a balcony, sending it to electronics heaven. I had very little money left after the move, but I had enough saved to get the car working again, and to replace the cell phone.
During the second week in my new home, I lost my job, and suddenly I was in a new place with no income, and very little savings. For the next few weeks, I paid what I could, when I could, living in a constant state of anxiety. I had no real plan. I had always saved enough to cover myself if something happened, but hadn’t thought of what to do if everything happened at the same time.
Eventually I got caught up again, but that unexpected detour into financial misery taught me a valuable lesson. One day the money may not be there, and you will have to work with what you have. It’s all about knowing how to prioritize. When you can’t pay for everything, you have to pay for things in order of importance.
How to Prioritize Your Expenses
It may seem like this goes without saying, but when you’re trying to work with a tight budget, you can easily underestimate how much money you need for food, and end up hungry. Always set aside money for groceries first. And that means just the basics. You may have to do without fast food and luxury items for awhile, but you should set aside enough to buy healthy foods for yourself and your family. To save in this area, look into how to extreme coupon.
2. Household Necessities
You need toilet paper, toothpaste, soap, laundry detergent, and the dozens of other things it takes to keep a household running. While deodorant probably isn’t topping your list of priorities right now, you have to keep buying household necessities. You can cut down on the cost by eliminating anything you don’t absolutely need (e.g. a new bottle of hair gel), shopping for discounted items, and only replacing things when they are depleted.
3. Rent or Mortgage Payment
In some states, landlords can evict a tenant if you’re even one day late on the rent. Most landlords won’t do this, but don’t take the risk. If you own your home, you may have a little more leeway with the bank in paying your mortgage every month, but you shouldn’t take the risk in this case either. It’s your home and you can’t afford to lose it.
4. Essential Utilities
Living without electricity, gas, or water can be dangerous. Extremely high and low temperatures cause health problems, and if you have kids or elderly family members at home, they’re at an even higher risk of becoming ill in extreme temperatures. Many utility companies let you delay your payment for a month if needed, but make sure you have enough to participate in a payment plan. If your power does get cut off, you’ll have to pay even more to have it restored.
5. Child Support
Keeping up with child support payments is critical. You have a responsibility to your children, and if you stop making child support payments, you could end up in jail. If you don’t pay child support, you may also risk losing custody rights. Child support cannot be put on hold; even if you have lost your job, you may still be legally obligated to continue making child support payments.
6. Income Taxes
If you don’t pay income taxes, the penalties are far-reaching. You might go to jail for not filing your income taxes and in addition, you will pay extensive fines and interest on tardy income tax payments. It may seem easier, and less expensive, to avoid filing your taxes when you are unemployed. Unfortunately, every month or year that goes by without filing taxes compounds the penalties and interest amounts that you have to pay.
It’s tempting to cut the high monthly premiums on your insurance when money runs tight, but going without insurance is too risky. If you were to get sick, wreck your car, or have a house fire right now, could you afford to pay for the expenses associated with these catastrophes?
8. Car Payments
If you owe money on your car, keep up with the payments. If you fall behind, the bank could repossess the vehicle. As a result, you may not have a way to get to work or pick your kids up from school. In addition, a vehicle repossession will hurt your credit score. This may cause problems for you in the future, when you apply for insurance, apply for certain types of jobs, try to get a new credit card, buy a home, or complete an application for an apartment for rent.
9. Cell Phone/Telephone Payments
You need a phone at home in case of emergencies. If you have a landline, you can cancel your cell phone service for the time being. If you only have a cell phone, talk to your provider and lower your monthly service rate. Most providers offer a by-the-minute or emergency-only plan, for a lot less than your regular rate.
10. Loan Payments with Collateral
Keep your loan payments current if you put up any vital possession, such as your house or your car, as collateral. The bank has the right to take possession of anything you listed as collateral, which will only make your temporary financial setback a bigger problem. If you default on a loan, you may lose your vehicle or home, and your credit history will also take a big hit, which can have negative effects in the future.
11. Unsecured Debts
Unsecured debts include credit cards, doctor’s bills, vet bills, or any loan or payment you have outstanding that doesn’t have a collateral backing. You should pay these after you cover payments for collateral loans. For credit cards, you can pay the minimum monthly amount due for a while, to free up more money for other expenses. Look for low interest APR credit cards and don’t let payments fall too far behind. Otherwise, you’ll struggle to pay off the debt later.
12. Internet and Cable Bills
Having access to Internet or cable services is commonplace; most of us forget we’re even paying for the service. Unless you work or attend school from home, you may not need the Internet, and you never need cable TV. Pay for these services only after you cover your basic needs and debts. If you are actively searching for a job, you may need to be able to check your emails regularly. However, you can do this at a coffee shop, restaurant, or library as well.
13. Subscription Services
Most of us have racked up a fair amount of services or memberships that come out of our bank accounts automatically each month, including Netflix or Blockbuster, Hulu Plus, gym memberships, or tanning memberships. You really don’t need any of these services. If you’re struggling to keep up with subscription payments, or only paying the minimum due on other bills, cancel these services for the time being.
Remember to take care of your basic human needs including food, shelter, and safety before you worry about your debts. Once you take care of yourself, tackle your debts in order of priority. Don’t let concerns about your credit card rating, or threats from a debt collector, scare you into paying for something you don’t absolutely need to pay for right now – especially if paying the bill will keep you from being able to take care of yourself. After your financial crisis passes, you can work on getting caught up and paying down those debts.
If you have recently become unemployed, or if you are about to be laid off, try to tidy up as many loose ends as you can before the pressure tightens on your finances. Apply for 0% balance transfer credit cards, refinance your mortgage, and if absolutely necessary, remove funds from your retirement plan. When you no longer have a steady income, you won’t be eligible for low interest credit cards or loans. Requesting a distribution from your retirement plan should be a last resort, because early withdrawals have stiff tax penalties. It is money that you earned, however, and money that can be used for an emergency.
Above all, communicate with your creditors and the utilities companies, to let them know you want to continue to pay money towards your debts. You might find that your credit card company will waive a late fee, or that your utility company can offer you more time to pay your bill.
Have you ever had to prioritize your bills? How did you manage to juggle your finances?