As much as we try to budget and plan for everything, sometimes unexpected expenses or financial setbacks can throw us off course. If you find yourself in a situation where you can’t pay all of your bills, it’s important to prioritize and make smart decisions about where your money goes.
Here are some tips on what to pay when you can’t pay everything:
1. Basic living expenses
Your top priority should be your basic living expenses, such as rent or mortgage, utilities, and food. These are essential expenses that you cannot go without, and should be paid before anything else. If you’re struggling to make ends meet, there are resources available to help with food and housing assistance, such as SNAP (Supplemental Nutrition Assistance Program) and Section 8 housing.
2. High-interest debt
Next on the list should be high-interest debt, such as credit card debt. This type of debt can quickly spiral out of control if left unpaid, due to the high interest rates and fees associated with it. If you’re not able to pay the full amount owed, try to make at least the minimum payment to avoid even more fees and penalties.
3. Secured debts
Secured debt, such as a car loan or mortgage, should also be a priority. These debts are tied to a specific asset, such as your car or home, and if you fail to make payments, the lender can repossess or foreclose on the asset. If you’re struggling to make payments on a secured debt, contact your lender to see if you can work out a payment plan or deferment.
4. Medical bills
If you have outstanding medical bills, they should also be a priority when deciding what to pay. Medical debt can harm your credit score and lead to collection efforts if left unpaid. Contact your healthcare provider to see if they offer any assistance or payment plans for medical bills.
5. Unsecured debts
Unsecured debts, such as personal loans or student loans, should be lower on the priority list than secured and high-interest debt. While it’s important to make payments on these types of debts, missing payments typically won’t result in repossession or foreclosure. Contact your lender to see if you can work out a payment plan or deferment if you’re struggling to make payments.
6. Collections and past-due accounts
If you have accounts that are already in collections or past due, they should be a lower priority than other debts. While it’s important to pay off these accounts to avoid further damage to your credit score, prioritizing other debts that have higher repercussions if left unpaid, such as secured debt, should be your priority.
7. Discretionary expenses
Finally, discretionary expenses such as entertainment, travel, and dining out should be the lowest priority when deciding what to pay. While these expenses may be enjoyable, they’re not essential and can be cut out if needed to prioritize other expenses.
It’s important to note that if you’re struggling to make payments on your debts, there are resources available to help. Consider reaching out to a credit counseling agency to discuss your options for budgeting and debt management. They can provide guidance on how to prioritize your debts and work with your creditors to set up payment plans or reduced interest rates.
Another option is to negotiate with your creditors directly. Many creditors are willing to work with you to set up a payment plan or reduce your interest rate if you’re struggling to make payments. It’s important to approach these negotiations in a professional and respectful manner, and to be honest about your financial situation.
If you’re still not able to make payments on all of your debts, you may want to consider debt consolidation. This involves taking out a loan to pay off multiple debts, which can simplify your monthly payments and potentially lower your interest rates. However, it’s important to do your research and compare options before committing to a debt consolidation loan.
In conclusion, when you can’t pay everything, it’s important to prioritize your debts and make smart decisions about where your money goes. Basic living expenses, high-interest debt, secured debt, medical bills, unsecured debt, collections and past-due accounts, and discretionary expenses should be considered in that order. Remember, there are resources available to help if you’re struggling with debt, so don’t be afraid to reach out for assistance.