I Can’t Pay My Bills: Which Debts to Prioritize First
When you’re struggling to make ends meet, bills like a mortgage, auto loan, credit card and more can pile up. It’s easy to lose sight of financial priorities when you’re facing such hardship.
But some debts have more severe consequences if you can’t pay, while others may fall lower on the priority list. When you can’t pay all your bills, it makes sense to prioritize the most important ones. Find out which debts are most crucial to pay each month and what to do when you can’t pay your bills.
High-priority bills that are the most important to pay each month
|Bills that you should prioritize each month|
|What happens when you don’t pay?|
|Auto loan and auto insurance||
|Mortgage or rent payments||
Auto loan and auto insurance
If you default on your auto loan for a series of payments, your creditor can repossess your car. This can be devastating if you need your car to get to work or to go to the grocery store. And if you don’t pay your auto insurance premium, you could end up losing your insurance coverage. It’s both illegal and a liability to drive without insurance.
Auto loan borrowers who think they may have trouble making their payments should get in touch with their auto loan lender and insurance provider to see what relief programs are available. The lender may be willing to adjust your payment due date, put you on a payment plan or grant you a payment extension.
Mortgage or rent payments
During an emergency, the most important thing to do is ensure you have all the necessities covered: food, water and shelter. If you’re a renter who doesn’t make your rent payments, you could be evicted. If you own your own home and you can’t pay your mortgage, you could face foreclosure and lose your home.
Homeowners who are going through financial hardship should get in touch with their mortgage lender to see what programs are available, including forbearance, modification and refinancing. If you can’t pay your rent, try to negotiate a late payment with your landlord in writing. You can offer to pay some of the rent on time and the rest at a later date in the month, but you may have to pay a late fee.
It’s important that you pay your renter’s insurance or homeowner’s insurance premium each month. If you don’t, you could be on the hook for any damages that occur while you are the leasee or while you own the home. But you could reduce your coverage or shop around for a cheaper policy if you can’t afford to make the payment.
Utilities such as water, gas and electricity
Utilities don’t just make your home comfortable, they make it habitable. Without water or heat, you and your family could find yourselves in a dire situation. If you don’t pay your utility bills, the individual providers may cut off service within a matter of days or weeks.
If you’re having a hard time keeping up with your utility payments, you may qualify for relief. Get in touch with your utility companies to see what programs are available, such as reduced rates and energy savings programs. You may also qualify for a payment assistance program, such as the Low Income Home Energy Assistance Program offered by the federal government.
Court-ordered debts like child support
Parents who owe child support are legally obligated to keep making payments. If you don’t pay, the Office of Child Support Enforcement can withhold your income and retirement, set liens on your property, intercept a tax refund and levy your bank accounts.
Failing to pay court-ordered debts can result in wage garnishment, bank account seizure, property seizure and even imprisonment. Other court-ordered debts include court judgment debt (including when a creditor sues you over a debt, and criminal justice debt (including court fees and fines associated with a criminal charge).
Debt collection has not stopped due to the coronavirus, and your creditors may still garnish your wages and even your stimulus check during this time.
Debts that are a lower priority if you’re struggling
|Bills that can be a lower priority|
|What happens when you don’t pay?|
|Cable bill and other subscriptions||
Unless you are successfully sued over your debt, your creditor cannot garnish your wages or seize bank accounts and property for unpaid credit card bills. This means that without a court-ordered judgment, your credit card company can’t really do much since it doesn’t have any collateral ー unless you have a secured credit card. (If your creditor has successfully sued you, however, then you’ll need to adhere to the court-ordered debts guidance above.)
Missed payments on your credit card will hurt your credit. To keep your account in good standing, try to make the minimum payment at least. Get in touch with your creditor to ask if they can temporarily lower your minimum monthly payment.
Payments due to hospitals and doctors’ offices fall relatively low on the priority list. That’s because you have months before your medical debt affects your credit rating, and medical debt is unlikely to carry high interest rates. Medical debt doesn’t result in seizure of property like delinquencies on an auto loan or a mortgage, unless you are successfully sued.
Plus, there are a few ways to negotiate medical debt through the hospital’s billing department. You may be able to:
- Lower the overall balance owed
- Pay through an interest-free payment plan
- Check the itemized bill for errors
- Enroll in a hospital’s payment assistance program, if eligible
If a medical care provider has already successfully sued you over debt, then refer to the above section on court-ordered debts.
Federal student loan borrowers may qualify for an income-driven repayment (IDR) plan that sets your monthly payment based on their current income and family size. Borrowers may not be required to pay any amount if their income is low enough.
If IDR isn’t an option, you still don’t need to prioritize this debt over more important bills like rental payments, at least not right away. Federal student loans aren’t in default until you’ve missed nine months of payments, though your credit will take a significant hit. At the end of that nine-month period, borrowers risk wage garnishment, seizure of tax refunds and seizure of other federal benefits like Social Security.
Private student loans also fall low on the priority list, as they typically do not require collateral, so you don’t risk losing any assets if you default. However, your credit score will suffer if you don’t make payments. Get in touch with your lender if you’re having difficulty with your private student loan payments.
Personal loans are typically unsecured, which means they don’t require collateral. If you can’t make your personal loan payment, you don’t risk losing any physical assets, like your car or home. You do risk ruining your credit, though. Within a few statement cycles of nonpayment, your lender may assess a late payment fee, send you a letter of default and report you to the credit bureaus. After 90 days, your lender may prepare to take you to court.
Let your lender know if you can’t make the payment. Personal loan lenders sometimes offer hardship assistance programs including loan modification, forbearance and payment plans.
Cable bill and other subscriptions
In times of dire need, it’s best to cancel your nonessential utility bills. This includes cable, streaming services like Netflix and other monthly subscriptions that you could do without temporarily. Many of these services offer free cancellation, making it simple to reduce your monthly spending.
Get in touch with your internet provider to see if they can work with you for some type of hardship assistance or a low-income internet plan. If you need to suspend your internet services, take advantage of your local library for free internet access.
What happens when you don’t pay your bills
When you open a new credit card or loan, you enter a legally binding contract with your financial institution. If you can’t fulfill your side of the deal, your creditor or lender may take action.
Here’s what could happen if you don’t pay your bills:
- You may be charged a late fee. This is typically the first action that’s taken when you are delinquent on a credit card payment, loan payment or another bill.
- Your service may be disconnected. For example, your internet service provider or phone company may stop service to your account.
- You may suffer a blemish on your credit report. Late payments can last on your credit report for up to seven years.
- Your assets may be seized. If you have a secured loan or credit card, then the lender may seize any assets you put up as collateral, such as your car, home or bank account funds.
- You may be taken to court. If a financial institution can’t get their payment by other means, they may turn to litigation.
You may qualify for assistance through your financial institution, so contact them as soon as you think you’ll miss a payment. When you can’t pay your bills, it may seem counterintuitive, but it’s important to reach out to your creditors right away. They may be able to waive late fees, defer payments or put you on a payment plan.