When you come up short one month, here’s how to prioritze which bills to pay first

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If you’ve ever found yourself in a situation where you realize you don’t have enough money to pay all of your monthly bills in full and on time, you know how stressful it can be.

A job loss, a health crisis, or even an unavoidable emergency expense can quickly throw you off financially when you’ve been living paycheck to paycheck.

The last thing you need is to have your essentials taken away or your credit score ruined.

However, there are ways to assess the situation in order to minimize the negative consequences.

The most important thing you should do is let your creditors know you’re in a tight spot.

“Communicate with everyone you owe and let them know what happened regarding your financial setback and how long you think it will affect your budget,” said Bruce McClary, a spokesman for the National Foundation for Credit Counseling a former certified credit counselor.

The reason he gave was: “If you are honest and are willing to have a conversation, it can lead to solutions that you would not otherwise have known about.”

For example, companies you owe money to may offer you a month or two of grace without penalty, or may only require you to make partial payments until your financial situation improves.

They may also refer you to cheaper company offers or outside programs that offer financial assistance if you qualify (such as the Low-Income Home Energy Assistance Program (LIHEAP)).

There are two pieces of good news in your favour.

In general, your creditors would ultimately rather ensure that you remain in good standing as a customer than close your account and hand it over to collections, McClary said. “There is a mutual interest in helping you stay on top of things.”

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If you’re in a tough spot for just a month or two, there’s a good chance your account won’t be closed, your insurance policy will be canceled, or your credit score will be affected. (But to be safe, ask your creditors when they might take punitive action, like stopping performance or sending an invoice to a collection agency.)

Most utilities, for example, won’t stop service for a few months, and if they report to the credit bureau (which not all do), they won’t do so until you’re more than 30 days late, even though they do may charge late fees, said certified financial planner Linda Robertson, head of financial coaching at Financial Finesse.

Once you know what reliefs your creditors are giving you, you’ll have a better idea of ​​how much money you’ll have to pay for all of your monthly bills.

Here’s one way to think about how you prioritize your payments:

Take care of basic needs first. Housing and electricity are vital to your health and safety. Likewise the health insurance.

If you own a home, your mortgage is considered a secured loan. This means that your home is collateral and the bank can take it back if you default on your payments. So ask your mortgage servicer if they can offer you a deferred payment.

If you’re renting, you can’t afford to be evicted. So ask if your landlord is willing to sign a contract with you for a few months.

Next, take care of bills that will help you keep your job. If you can’t get to work without a car or can’t get your work done from home without internet or phone service, these should be your next priorities. The same applies to childcare costs.

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If you have a car loan or lease, keep up with these payments to avoid having your vehicle impounded. And keep track of your car insurance payments so you don’t lapse your policy – receiving a large bill after an accident and finding out you’re no longer covered will only make your situation worse.

“You want to focus on the things that allow you to keep working because you have to keep your paychecks flowing,” Robertson said.

If you are self-employed, you bear the costs for internet and telephone services. However, if you’re paying for these services while working full-time for an employer, you should see if your company can reimburse you for at least some of the cost, McClary suggested.

If you’ve automated your bill payments, notify your bank or credit union at least three business days before a scheduled transaction to temporarily halt automatic charges until your financial house is in good order, McClary said. (You can find tips on how to do this here.)

Then think about your credit cards: These shouldn’t be the top priority bills to pay when you’re facing a wall.

That’s because credit cards aren’t “secured” debt — meaning you can’t recover anything if your account seriously defaults. But your credit can be destroyed. And with interest rates at record highs and late payment penalties, you should do everything you can to pay off your balance as quickly as possible. And at least try to pay the minimum amount due.

If you’re late on a payment, call your credit card issuer to see if they can waive the late fee, Robertson said. They usually waive a late fee every 12 running months.

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And check if your tariff can be reduced temporarily. Robertson said she had a client with a $6,000 balance who was fired. Her credit card issuer agreed to lower her interest rate from 29% to just 2% for six months.

In this episode, you should think about what other expenses you have that you really don’t need or want. For example, McClary suggests if you subscribe to multiple streaming services, you might cut out the ones you don’t watch frequently.

And do you really need an iPhone 14 when an earlier generation iPhone could work just as well for your purposes? You could also call your phone provider and tell them you’ve seen special rates well in excess of what you’re paying for and ask what they can do to keep you as a customer, Robertson said.

However, if your financial problems are due to not making ends meet but to a chronic situation rather than a temporary one caused by unforeseen circumstances, you should think about getting help.

The NFCC can put you in touch with an accredited financial advisor. The advisor can review your budget and finances and make recommendations for a better future. The initial review is usually free, and beyond that, someone using ongoing counseling services can pay an average of $35 to $40 a month, McClary said.

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