If you’re having trouble making ends meet due to job loss or other coronavirus-related financial uncertainty, you might be asking yourself which bills you can afford to skip this month. Should you make the credit card payment and put off the water bill, or is it better to do it the other way around?
Luckily, there’s an expert answer to this question—and it comes from a reputable source.
The U.S. National Consumer Law Centre (NCLC) recently made the digital edition of its classic book Surviving Debt: Expert Advice for Getting Out of Financial Trouble free to download. (Hat tip to CNBC for alerting us to this excellent resource.)
Rule #1, according to Surviving Debt, is “Prioritise Debts Whose Non-Payment Immediately Harms Your Family.” These are your electric bills, your car loan payments, your child support bills and so on. As the NCLC explains:
Non-payment of certain debts have sudden and dire consequences for your family. Deal with these debts immediately—either pay these debts first or otherwise follow advice in this book on how to manage these debts.
Never pay smaller, low priority debts just because you cannot keep up with high priority debts—“If I can’t pay my mortgage, at least I will keep up with my credit cards.” This is a bad idea. If you don’t have enough money to make full payments on high priority debts, try to negotiate with the creditor to accept lower payments or save the money to be used later to get caught up, to cover the initial costs of moving to a new residence, or to pay for another car if your car is repossessed.
Note that the NCLC is including monthly expenses like rent and utilities in this category of “high-priority debt.” If skipping one of these bills would directly harm yourself or your family, prioritise the payment.
If skipping a bill would have a less direct consequence, the way missing a credit card payment might hurt your credit score but probably wouldn’t cause you to lose your house, de-prioritise the payment. Don’t pay that bill until your high-priority bills are taken care of—and look for options that might help you postpone that bill until the future.
Of course, the coronavirus pandemic has prompted many companies and lenders to be more lenient with consumers, whether through certain programs or simply by offering a couple months of free services.
When it comes down to deciding which debts take priority and which debts can be postponed, knowing which bills you can put off—and which lenders you need to contact to request forbearance options—will help you protect both your family and your finances during these difficult times.
So take the NCLC’s advice, and maybe go read the free online version of Surviving Debt while you’re at it.