When money is tight, wise financial decisions are more important
than ever. Providing necessities for your family is your top priority. All other
bills are of lesser importance, regardless of what a creditor or debt collector
may say. These 16 rules will help you prioritize your bills and expenses.
1. Pay family necessities first.
Paying for food and essential medical expenses should
be your first priority.
2. Pay housing-related bills. Keep up your mortgage or
rent payments, if possible. If you own your home, real estate taxes and insurance
must also be paid unless they are included in the monthly mortgage payment.
Any condo fees or mobile home lot payments should also be considered a high
priority. Failure to pay these debts could lead to loss of your home.
3. Keep utilities on. Whatever utility payments are necessary
should be made if possible. Working hard to keep your house or apartment makes
little sense if it is not livable because you have no utilities.
4. Pay a car loan or lease. If you need your car to get
to work or for other essential transportation, rank your car payment just
below food, medical expenses, utilities and housing costs on your priority
list. You may want to pay your car payment first, if your car is essential
to holding onto your job. Stay current on your insurance payments as well.
If you don't, your creditor may buy for you at your expense more costly collision
and theft coverage with less protection. In most states, it is illegal not
to have automobile liability coverage.
5. Pay child support. Child support debts will not go
away. Fail to pay and very serious remedies may result, including prison.
6. Pay income taxes. You must pay any income taxes you
owe that are not automatically deducted from your wages. You must file your
federal income tax return even if you cannot afford to pay any balance due.
Remember, though, if you have lost income due to a change of circumstances,
your tax obligations will also be reduced. Pay only what is necessary.
7. An unsecured debt is a low priority. Consider most
credit card debts, attorney, doctor and hospital bills and other debts to
professionals, open accounts with merchants and similar debts low priorities.
You have not pledged any collateral for these loans, and there is rarely anything
that these creditors can do to hurt you in the short term. Many won't bother
to try to collect in the long term.
8. A loan with household goods as collateral is a low priority.
Sometimes a creditor requires you to put some of your household goods up as
collateral on a loan. Treat this debt as a low priority. Creditors rarely
seize household goods because they have little market value, it is hard to
seize them without court process, and it is time consuming and expensive to
use a court process to seize them.
9. Don't move a debt up in priority if a creditor threatens
to sue. Many threats to sue are not carried out. Even if the creditor
does sue, it will take a while for the collector to be able to reach your
property, and much of your property may be exempt from seizure. On the other
hand, nonpayment of rent, mortgage and car debts may result in immediate loss
of your home or car.
10. Don't pay when you have a good, legal defense. If
the goods purchased were defective or a creditor is asking for more money
than they're entitled, you may have a legal defense for not paying your bill.
You should obtain legal advice to determine whether your defense will succeed.
In evaluating these options, remember that it is especially dangerous to withhold
mortgage or rent payments without legal advice.
11. A court judgment boosts a debt's priority. After
a collector obtains a court judgment, that debt often should move up in priority
because the creditor can enforce that judgment by asking the court to seize
your property, wages and bank accounts. Nevertheless, how serious a threat
this really is will depend on your state's law, the value of your property
and your income. It may be that all your property and wages are protected
under state law. If so, you should still pay this debt only after more pressing
obligations. This is a good time to obtain professional legal advice if you
have not done so already.
12. A student loan is a medium priority debt. Student
loan debts should be paid ahead of low priority debts, but after top priority
debts. Most delinquent student loans are backed by the United States, and
federal law provides special collection remedies against you, including the
seizure of your tax refunds and denial of future student loans and grants.
13. Debt collection efforts should not boost a debt's priority.
Be polite to the collector, but make your own choices about which debts to
pay based on what is best for your family. Debt collectors are unlikely to
give you good advice. They'll urge you to pay debts that you should actually
14. Threats to ruin your credit should not boost a debt's
priority. In many cases, when a collector threatens to report your delinquency
to a credit bureau, the creditor has already provided the credit bureau with
the exact status of the account. And if the creditor has not done so, a collector
hired by the creditor is very unlikely to do so. In fact, your mortgage lender,
your car creditor and other big creditors are much more likely to report your
delinquency than a debt collector who threatens you about your credit record.
15. Treat co-signed debts as your own. If you have put
your home or car as collateral on a co-signed loan, paying this debt should
be a high priority debt when the other co-signers fail to pay. If you have
not put up collateral, treat a co-signed debt as a lower priority. If someone
has co-signed a loan for you and you are unable to pay the debt, you should
tell your co-signer about your financial problems, so that he or she can decide
what to do about that debt.
16. Refinancing is rarely the answer. If you're having
serious money woes, you'll want to be careful about refinancing. Refinancing
a loan can be very expensive, and it can give creditors more opportunities
to seize your important assets. A short-term fix could lead to long-term problems.