As inflation soars and interest rates rise, many Americans are finding that they have more bills than money at the end of the month. If you have to decide which bills to pay because you’re not able to pay all of them when they’re due, it’s important to make sure you’re prioritizing the right ones.
Every bill is a priority, but if you have a leaner month (or few months), develop a strategy that allows you to take more time to pay all your bills without suffering too much. Consider these four steps to determine how to prioritize your bills when you can’t pay them all at once.
Start by paying bills that carry immediate, severe consequences.
Some bills, when unpaid, can cause sudden negative consequences for you and your family. Those should always be paid first, according to the National Consumer Law Center.
The bills that carry quick, severe consequences for nonpayment include:
- Rent payments, as you may be evicted for nonpayment.
- Car loan or lease payments, as your car will be quickly repossessed for nonpayment.
- Utility bills, as nonpayment can lead to termination of gas, electric, water or sewer services.
- Child support or other court-ordered payments, as nonpayment can lead to fines and prison.
- Criminal justice payments, such as speeding tickets, parking tickets, or other fines or fees, which can turn into additional fees and prison when not paid on time.
Next, pay mortgage and tax bills.
If you don’t pay your mortgage and tax bills, nonpayment will also eventually lead to harmful circumstances.
- Mortgage payments. If you miss a month or two of mortgage payments, you will probably have to pay late fees, and it will most likely be reported to your credit report. But if you get behind by a few months or more, you could face foreclosure. If you think it’s going to take you a few months to catch up on mortgage payments, call your lender and try to work out a payment plan or ask for a reduced payment. Don’t wait until your home is facing foreclosure.
- Property taxes. If you own a home and your mortgage company doesn’t pay the property taxes, you are responsible for paying them. If your property taxes go unpaid for a period of time, your local government can seize and sell your home to recover the lost tax dollars.
- Income taxes. If you owe taxes to the IRS, you may be able to delay paying for several months – but with hefty interest and penalty fees. But eventually, the IRS will require payment and can seize your bank account, part of your paycheck and federal benefits, even your home to recover the taxes owed. Make sure you always file a tax return when due and even if you can’t pay the balance immediately, contact the IRS to work out a payment plan.
Pay credit card, medical bills and other debts.
Delaying payment on any bill can lead to negative consequences, but the timing of the consequences can vary for credit card debt, medical debt and other debts.. However, when you delay paying any debt, the creditor may report your nonpayment to the credit bureaus, which can have an impact on your credit scores.
Bills that can be lower on your list of priorities include:
- Credit card debt. Late payments or nonpayment will affect your credit score, so if you’re unable to pay on time, contact the credit card company to try to work out an alternate payment plan. Try to at least pay the minimum payment due. If you don’t work out a payment plan, you will likely have to pay additional interest and late fees.
- Medical debt. Outstanding medical debt is not reported to the credit bureaus unless it has been turned over to collections and is at least one year old. Medical debt also is unlikely to carry high interest rates or late fees if you need to take more time to pay it, but check with the medical company to see what arrangements can be made.
If you must prioritize your bills rather than paying them all when they’re due, try not to make it a habit. By delaying bill payment, you will create more debt, which can potentially have an impact on your credit score. Instead, work to build a budget you can stick to, and start saving so you’ll have a financial cushion next time you need it.
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