Tough Decisions: Which Bills to Pay

Some times are tougher than others. There may be times in your life that your finances are hard to manage. For example, if you’ve recently lost your job or suffered a pay cut, you may not have enough money to pay all the expenses you have. Ideally, you’ll get new employment soon enough that you don’t have to miss any payments, but it doesn’t always work out that way. You may face the tough decision of figuring out which bills you’re going to pay and which you’re going to skip.

First, you have to decide what’s important to you. Is it important that you have a place to live? That you have a vehicle to drive? That your electricity and other utilities remain in service? What about cable and the cell phone? How important are those? Your credit cards – do you want to keep those in good standing? You may not be able to juggle all your payments, so it’s critical to set your priorities and figuring out whose good graces you want to stay in.

Following the credit crunch, many people decided that paying their credit cards was more important than paying their mortgage. This is because their home values had dropped to the point that it wasn’t financially advantageous to continue making payments on an upside down mortgage. Financially, that may have made sense. But, if you stop making your mortgage payments and your home is foreclosed, where will you live?

Because your mortgage or other housing payment is often the biggest payment and the most difficult to catch up on, it’s typically best to make that payment first, above everything else. From a psychological standpoint, shelter is one of your most basic needs, right above water, air, food and sleep. Once you’re sure your more basic needs are taken care of, you’re more able to focus on other things.

Rent payments aren’t typically reported to the credit bureaus – some are, so be careful here – so missing a payment may not hurt your credit score. It will however, lead to a late fee, and eventually start the eviction process. Discuss payment options with your landlord if you think you can’t make your rent payments. An eviction will go on your credit report even if your regular payments aren’t regularly reported..

Utility payments aren’t routinely reported to the credit bureaus, but there are still very uncomfortable consequences to not paying them, like having your services disconnected. How well can you live without electricity or water? Since utility costs are typically based on usage, you can lower what you pay by cutting your usage down to the bare minimum.

You may have payments on an auto loan, these are also important if you want to keep your vehicle. Falling behind hurts your credit and puts you at risk of repossession.

It’s tough prioritizing credit cards so low on the list, especially since missing these payments will have a big impact on your credit score. But, consider this – you stand to lose big by missing out on many other monthly payments. If you miss your credit card payment, your credit score will suffer, you’ll face late fees, but your property won’t be foreclosed or repossessed. You won’t have to live in the dark or go without running water if you miss a credit card payment.

Student loan payments are also important. But, student loan lenders may be more willing to put you on temporary forbearance allowing you to skip or reduce your payment for a few months. Note that if you default on your Federal student loans, your tax refund may be at risk.

Can you afford to pay your insurance? Insurance payments, like many other monthly non-debt payments – don’t affect your credit score. But forgoing insurance is risky. You never know when something will go wrong and without insurance you’re left to cover the cost. For example, if your auto insurance policy lapses and you have a car accident, it’ll be difficult getting your car fixed. And if you’re in an accident with someone else, you may have to cover their damages too.

Most bills have some level of importance and that makes it tough when you only have enough money to pay some of them. It can be a juggling act of staying in good with your creditors so you can pay some bills with your credit cards, keeping current on your mortgage so you don’t get foreclosed, and making interest payments on your student loans to avoid default. It’s not an easy decision, but do the best you can. Pay what you believe is critical for your safety and well-being and that of those who depend on you.