Personal Loans

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

Debts that are a lower priority if you’re struggling

What happens when you don’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
  • You’ll be charged a late payment fee
  • After one billing cycle of non-payment, your credit score will take a hit
  • The lender can repossess your car, in some states as soon as you default on your loan
Mortgage or rent payments
  • After 15 days of non-payment, you’ll be charged a late payment fee
  • After 30 days, your credit score may take a hit
  • After 120 days, your lender may begin the foreclosure process
  • If renting, your landlord can evict you, with the time frame depending on local laws
Utilities
  • Utility companies can disconnect your power, water or gas
  • If your account is charged-off or sent to collections, your credit will take a hit
Court-ordered debts
  • Depending on the type of debt you owe, debt collectors may be able to garnish your wages
  • Failing to pay court-ordered debts may also be punishable by jail time

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.

For those affected by the coronavirus… Many auto loan lenders are offering hardship programs to eligible borrowers who are affected by the coronavirus pandemic. Such programs include deferred payments, payment plans, penalty fee waivers and payment due date adjustments.

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.

For those affected by the coronavirus… During the coronavirus pandemic, homeowners and some renters are protected by the Coronavirus Aid, Relief and Economic Security (CARES) Act. The legislation includes the following:

  • 60-day moratorium on foreclosures
  • Guidelines on mortgage forbearance
  • 120-day moratorium on evictions for tenants renting from a landlord with a federally backed mortgage

Many states have also suspended eviction and foreclosure proceedings. Plus, many lenders are offering coronavirus-specific hardship programs.

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.

For those affected by the coronavirus… Congress has demanded that utility companies halt shut-offs during the COVID-19 outbreak, although there has been no federal legislation requiring companies to comply yet. While companies in many states have obliged, there are reports of utility companies in some towns continuing with shut-offs.

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).

For those affected by the coronavirus… Your entire Economic Impact Payment, the one-time $1,200 stimulus payment offered to many American taxpayers with Social Security numbers, can be garnished to repay your child support debt. There are no exceptions for financial hardship.

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?
Credit cards
  • Once your credit card bill is 30 days past due, your credit card issuer can report you to the credit bureaus
  • You may be charged a penalty APR and late fees
  • The credit card issuer may file a lawsuit to try to recoup some of the debt
Medical debt
  • After 60 days, a hospital may send your bill to a collection agency
  • If your medical bill is 180 days late, the debt can affect your credit score
Student loans
  • If your federal student loan account is delinquent for 90 days, the lender may report you to the credit bureaus, which will lower your credit score
  • If you don’t make your payments after 270 days, your student loan goes into default. The lender can garnish your wages and take you to court, among other consequences
Personal loans
  • Within 30 to 60 days, your lender may send you a letter of default, charge you a late fee and report you to the credit bureaus, which will lower your credit score
  • After 90 days, the lender may prepare to take you to court or try to settle your debt
Cable bill and other subscriptions
  • Instead of letting your account go into default and risk a hit to your credit score, it’s best to cancel subscriptions that you don’t need

Credit cards

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.

For those affected by the coronavirus… Many credit card issuers are offering relief to customers who are affected by the pandemic. Relief comes in the form of payment deferrals, extensions and even waived late fees. An April 2020 LendingTree survey found that 91% of cardholders who asked their issuer for a break due to the coronavirus were able to get relief.

Medical debt

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.

For those affected by the coronavirus… Americans who have been sued over medical debt are still obligated to make those payments or face legal repercussions. The CARES Act does not offer any special provisions for those who owe medical debt.

Student loans

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.

For those affected by the coronavirus… As part of the CARES Act, all federal student loan payments and interest charges have been suspended through Sept. 30 for loans through the Department of Education, though that is not the case for private student loans. Many private lenders are, however, offering their own hardship programs that may include suspension of payments and forbearance, for example.

Personal loans

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.

For those affected by the coronavirus… Many personal loan lenders are offering hardship assistance programs for borrowers who have been affected by the coronavirus pandemic. Select lenders have waived late fees and postponed payments, among other things.

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.

For those affected by the coronavirus… Some internet service providers, including AT&T and Comcast, have stopped disconnecting service for customers who have been affected by the coronavirus. They have also temporarily suspended late fees and opened up public Wi-Fi hotspots.

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.

Beware: Your stimulus check can be seized over unpaid debts. In April, the government started depositing Economic Impact Payments into eligible taxpayers’ bank accounts as part of the CARES Act. Depending on where you live, debt collectors may be able to garnish your stimulus check. Some states, including New York, have blocked financial institutions from seizing stimulus payments.
 

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