When Times Are Tight, How To Decide What Bills To Pay First
If reports are correct, because the real estate market is relatively more stable here, Chester County is not experiencing nearly so many of the financial problems that affect the rest of the country now. However, everyone is watching what he or she is paying and that affects both the individual and society at large.
For the first time in my memory, economists have expressed concern that people might be saving too much. If consumers do not buy, then inventory builds. With decreased sales, there is less cash to spread around.
Still, if you find yourself seated at the kitchen table with a stack of bills and more outgo than income, here are some ideas. Credit is due Wikia Finance at www.finance.wikia.com/wiki/Paying_bills and to Oregon State University Extension Service which developed an analysis in an on-line publication “Managing Between Jobs – Deciding Which Bills to Pay First.”
According to Wikia, it is, of course, optimal to pay all bills on receipt. It saves time; worry; last minute hassles and possibility of defaults; it saves money as you do not have to pay default fees if you fail to pay by the due date and since you pay your bills first, the temptation to spend money on other things will be less due to funds already gone to pay the essential bills.
Wikia recommends organizing bills into essential bills for necessities and low priority which it notes must be paid at some point to avoid damage to one’s credit. It does not recommend refinancing. Debtors must keep a calm head since, for instance, calls from collection agencies may not necessarily reflect the importance of the bill.
Oregon State Extension uses a 4 step process analysis. First, in “Sizing Up Your Situation”, the article asks the reader to assess:
- How much income can you count on each month?
- How much money is needed to cover your essential monthly living expenses?
- How many creditors do you owe and what is the total amount you owe <using a worksheet>?
- How long is your present financial situation likely to last?
- What assets (savings, items that could be sold) do you have that could be used to pay off your debt?
- What debts are the most important to repay first?
- What debts could be satisfied by voluntarily surrendering, or giving back, the item?
In “Who Gets Paid First” the article notes that you are legally obligated to pay all of your creditors. Recognizing that not all creditors will accept partial payments, it recommends these criteria in prioritizing:
- What will affect my family’s health and security the most? This includes the house or living quarters, utilities, food, transportation, and medical insurance. Do not let medical insurance lapse when money is tight. Pay high priority bills or contact the creditors at once to work out smaller payments.
- What will you lose if the bills are not paid? Home mortgages and car loans are examples.
- How much do you still owe on the loan? If it is almost paid, it might work to get one bill out of the way.
- What interest rate are you paying? Consider making more payments on higher interest rate credit cards over lower ones.
- Is a consolidation loan a good idea? The authors of the publication generally did not think so because of added cost.
- What is the effect on your credit report? This can affect your ability to get credit later and make it more expensive.
The third and fourth steps are to develop a repayment plan that the reader puts in writing and then make it work while keeping in contact with your creditors.
Here are some notes of my own.
Home mortgage payments and health insurance are critical. If a home mortgage falls behind, even though there are Act 91 protections regarding a personal residence in Pennsylvania, it is too risky to allow a mortgage to go into default unless the owner intends to walk away. Being without health insurance is also unsafe.
Call and negotiate with utilities. There are relief programs. Let the companies know your problem. There are prescription drug programs for some critical drugs.
Credit card companies will often call and some of their harassing calls are illegal. Relevance depends on the importance the consumer attaches to his or her credit rating.
The best answer is to pay for goods and services at the time they are received. This means they will not be a problem later.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.