What Bills to Pay First (1283)

If you find yourself with "more month than money," or with income reduced and bills still rolling in, face the tough decisions head on. Realize that this probably means that family members need to reassess their spending habits and pull together in making the difficult decisions ahead.

When you see that you are not going to be able to pay all your bills as promised, contact your creditors to discuss when and how much you can pay. The sooner you size up your situation and make a plan for repayment, the better. Before you talk with creditors, take action! First, make an effort to cut down on living expenses, then inventory assets available for conversion into cash to meet payments, and finally decide in what order to pay your debts.

To set priority on debt payments, decide which ones result in the worst consequences for your family if they are not paid or are paid with less than the amount due:

- Which will affect your family’s health and security the most? Generally rent or mortgage payments, utilities, food, transportation and medical insurance are high priorities. These cannot be delayed!

- What will I lose if I do not pay? If a creditor holds title to your property as security on a loan, he can repossess it (for example, appliances and cars).

- How much do I still owe on the loan? Determine how much you have paid and how much you still owe. If the item is nearly paid for, you may want to finish paying to avoid repossession. If you should decide to voluntarily surrender an item, or have it repossessed, remember that you still must pay the difference between the market value and the amount outstanding on the loan.

- What interest rate am I paying? If your other loans are at a lower interest rate, you may want to pay off the credit card debt first to reduce the accumulating interest.

- Is a consolidation loan a good idea? A consolidation loan is a single loan that you can use to pay off all of your debts and stretch payments out over a much longer period. It may sound easier, but in the long run you will pay more interest, and you may be tempted to take on even more debt. Be especially cautious if the loan is secured by your house, or you could end up losing it if you continue to have financial problems or to accrue new debt.

- What will happen to my credit rating as a result of my financial problems? Not paying your bills will damage your credit rating and could make it harder to get credit in the future. Therefore, it is extremely important for you to contact your creditors—before they contact you!

After you have figured out how much you need for monthly expenses and how much you have for repaying debts, you are ready to decide how much you can pay each creditor, based on the priorities you have determined. Work out the plan, write it down, and explain it to your creditors. Be prepared to negotiate your payments. Be realistic in your letters and discussions with creditors. Explain the reason you cannot make full payments, and demonstrate your willingness to pay as much as possible given your current situation.

For more information on this subject, Please visit the College of Agricultural Sciences Publications Web site.

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