Thursday, July 9, 2009

When you can't pay all the bills--How to prioritize

Of course you know that when money is tight you need to cut out luxuries but when it all seems important it can be hard to sort prioritize your bills. When your personal cash flow is tight it’s easy to feel overwhelmed. It’s a real crisis situation and everybody reacts differently to this feeling. Some people brush it aside and ignore it. Some people just start handling things as the come—first come, first serve. Personally when faced with stress I act like a possum and go to sleep. But I’ve learned that the best way to deal with any problem is to meet it head on. Rather than take an aggressive attack approach it’s better to sort of sit back and look at the big picture. Organize the problem and deal with it accordingly. That goes for bills especially. If you don’t have the means to pay every bill then it’s time to figure out what’s really important and prioritize.

#1. Necessities: Basic survival depends on food and water. Take a hard look at your grocery bill. You can reduce your bill and still maintain basic health. Cut out the junk and prepackaged items, focus more on whole foods. Remember it’s always cheaper to make you own food than to eat out. So right there you can lighten your budget.

#2 Housing: This includes shelter. To feel secure you and your family need a roof over your heads. Do what you can to maintain this basic need. Try everything possible to keep up with mortgage or rent payments. Don’t ignore real estate taxes. Just a few hundred dollars of ignored taxes could cause you to lose your home. I’ve seen it happen.

#3 Utilities: I’m talking basic remember. Keep your heat and water. Air conditioning and satellite TV are not basic services.

Everything after these three is up for negotiation. Make a list of all of your other obligations and ask yourself the following questions regarding each bill to help you identify what is most important.
  • What consequences might there be if you don’t pay?
  • Is there any chance of lowering your payments?
  • Have you tried talking to the creditor? Communication is still the best method for tackling a problem.
The least important bill is one that is not secured by collateral. The credit card company is not going to come to your house and take back the items purchased with the card. However, the auto loan lender will come and take your car. But of course, I'm not encouraging you to make credit card purchase that you have not intention of paying.

Be courteous of others. If someone has co-signed a loan for you whether it’s a credit card or a car, treat this with higher priority. If you should default on the loan it becomes the co-signers problem. That’s just bad manners and won’t win you friends.

Don't let creditors pressure you into giving their company priority. The three items above are the most important. When creditors start contacting and pressuring you, it's time to get some help. Colorado and most other states have foreclosure help and you there are reputable companies that will help you with your overall finances. It's also worthwhile to go to the credit union branch and talk with their financial assistance staff. Often they can help with everything from budgeting to loan consolidation. And they won't charge you anything. The credit union's only goal is to help you.

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