What to Do When There’s More Month Than Money

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What should you do if you've hit a financial crisis? Which bills should you pay first and which ones can slide for a while?

You’ve lost your job or for some other reason don’t have enough money to pay all of your bills. Which bills should you pay first and which ones can slide for a while?

Here’s a basic rule of thumb according to the Boston-based National Consumer Law Center in its book, Surviving Debt:

“Always pay essential expenses and debts first. If any money is left, you can decide which nonessential debts, if any, to keep in your expense budget.”

An essential debt represents a serious obligation that if not paid could produce severe, even life-threatening consequences.

Do not make payments on nonessential debts when you have not paid essential ones even if your nonessential creditors are breathing down your neck.

Please do not misunderstand! I am not suggesting that you should just walk away from your financial obligations. You must pay your creditors, you must pay your bills. To not pay them is not an option. Of course it is not ideal to let some of your bills slide for awhile. But your situation is what it is. In time, as things improve (they will) you will be able to get caught up completely. But for now, you need to know how to get through this month.

Once you’ve determined which debts are essential, prioritize them according to the severity of the consequences you will suffer for non-payment. Here is a guide to follow, listed by priority.

ESSENTIAL EXPENSES

FAMILY NECESSITIES. This means basic food and unavoidable medical expenses including health insurance. Even though essential, keep these expenses to the absolute, bare bones minimum. You don’t eat steak three times a week when you can’t pay the water bill.

RENT OR MORTGAGE. Always assume that your landlord or mortgage lender will immediately proceed to evict or foreclose if you are late with a payment.

UTILITIES. Next you should pay the minimum required to keep the heat, lights and water utility services. Your cable and Internet bills are not essential utilities. You should probably cancel them for now. Use the computers and borrow DVDs from your local library.

CAR PAYMENTS. If a car is necessary to keep your job, making the loan or lease payment is the next priority.

CHILD SUPPORT. Paying child support is absolutely essential. Not paying can land you in jail. You have no options here for allowing this to slide or to go unpaid.

OTHER SECURED LOANS. Beyond your home and car, debts on furniture, boats, RVs and expensive electronic gear are likely to be secured—that means the lender can repossess for nonpayment. While you are in the process of selling these items to get out from the heavy debt load, you must keep current on all payments.

UNPAID TAXES. If the IRS is about to take your paycheck, bank account, house or other property, you need to set up a repayment plan immediately.

NONESSENTIAL EXPENSES

Nonessential expenses/debts are financial obligations that will have a lesser and or significantly delayed effect if you withhold payment for a limited time. This is called breathing room, not a pass. It’s a short period of time while you figure out what to do.

STUDENT LOANS. Failure to pay could eventually include seizure of your tax refunds and special wage garnishment. If you let this slide, expect to be charged penalty fees.

CREDIT CARDS, DEPARTMENT STORES AND GASOLINE CARDS. If you fall behind with these debts you will trash your credit score, lose credit privileges, pay horrendous late fees and—if the debt is unusually high—you may be sued. But you won’t lose your home. You can recover.

PERSONAL LOANS FROM FRIENDS AND FAMILY. You should feel a moral obligation to pay, but these creditors will likely be the most understanding of your situation. Don’t hide. Do the right thing and contact this person immediately to set up a face-to-face meeting.

MEDICAL, LEGAL AND ACCOUNTING BILLS. While these debts are real and will be paid eventually, they are rarely essential unless you are still receiving treatment.

OTHER SECURED LOANS. Every other debt you owe is probably in this category. These unsecured debts are rarely, if ever, essential enough to pay first.

I know this is such an emotional time for you. Don’t allow your emotions to dictate how you distribute the money you have. And do not let your creditors set the agenda. Do not hide, do not lie. Above all, do not take your situation personally.

Adopt a business-like mindset and treat your creditors as you would want to be treated if the tables were turned. Be courteous and respectful yet assertive. Do not make promises you cannot keep. And when your situation turns around (it will!) keep the promises you have made to your creditors, your family and to yourself.

Tough times never last, but tough people do.

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