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The following is a guest post by Frank Collins.
Most people run into financial difficulty at one time or another, when the money they have just does not stretch far enough to pay for all of the bills and expenses. Unfortunately, there is a tendency for these difficult times to snowball especially during more difficult times, when one unexpected expense comes right after another. You can soon feel that everything is going wrong, before you find a way to turn it around again. When you cannot scrape together enough money to pay for it all, you need to prioritize and pay for bills and debts in order of importance. What debts and bills should you pay first if you run out of money?
First Priority: Necessary Living Expenses
Groceries & Household Goods – you have to eat, even when money is tight and you need toilet paper and soaps. While your grocery bill is probably one area you can drastically cut back to reduce your required expenses, make sure you set aside enough money to buy the essentials for healthy meals for you and your family, as well as your household necessities. You can do without take out, fast food, and luxury items for a while to keep expenses down. You can also buy the cheaper brands or use coupons, but you need at least the essentials.
Rental or Mortgage Payment – you certainly need a place to live and in some areas you can be evicted from an apartment for being just a day or two late with your payment. Do not let your housing payment fall behind; it will be even harder to find a place to live if you default on your current home.
Required Utilities – it can be dangerous to live without your water, electricity or gas service, particularly when the temperatures are extremely high or low. Ask your utility companies for lower payments or a budget plan to help you through some difficult times, but do everything you can to keep them on. If your utilities get turned off for nonpayment, most companies will charge extra to turn them back on.
Car Payments – if you need your car to get to and from work or the store and simply do not have any other options, make sure to keep up with your car payments. If times are extremely tight financially, consider trading the car in or selling it for a less expensive car or one you can have without making monthly payments.
Second Priority: Debts and Extras
Secured Debts – next on the list of priorities are any loans or debts that you got with collateral. These are similar to your car and home, in that if you do not make the payment the lender can take over the car or home as collateral. Some personal loans required collateral when you applied – make sure you pay these before unsecured debts.
Unsecured Debts (credit cards) – your credit cards and any loans or bills that do not have collateral are next on your list of priorities. If you still have money left over after paying for everything above, focus the rest of your money in this category of expenses and debts.
Cable and Internet – you may have trouble imagining living without cable television or internet, but when money is tight, you can save quite a bit of money each month by canceling these services. If you use your internet for work-related or business-tasks, keep it on unless you have access to free Wi-Fi anywhere, but cancel the television service.
This guest post was written by Frank Collins, a professional writer specializing in topics related to personal finance, debt relief, credit repair and more. Pass through debtsettlement.com for more tips and advice.
Quality post. I like the clear layout, separating mandatory expenses and secondary. I try to distinguish this in budgeting to see how much money I can save each money. I would suggest it would be possible to not have any debt and therefore have less items to pay, but if someone doesn’t have any debt (except for a mortgage), most likely they won’t run out of money. Way to cover all your bases in a succinct manner.
Agree with 20S. Separating mandatory and secondary is key to dealing with the issue of no money. We try to plan our budget and spending this way every month. What are the musts and what are the can waits.
I agree that taking care of shelter and food is a priority. If we were limited on funds, we’d take care of those bills. I’d also recommend checking with utilities to see if you can get a payment plan. It could ease a burden a bit if you can get some breathing room with your budget.
No one wants to imagine such a situation. However it is true, even in bleak circumstances you need to set priorities. Good post.
I think the biggest mistake people do is trying to prioritize payments based on how fast non-payment would affect their credit score, leading to ridiculous situations. One example I remember is a person from New York who paid his credit cards but was about a month late on his rent just because he knew the landlord wouldn’t report it by the time he expected to get back on track. When you have a wife and three kids under that same roof a decision like this one makes very little sense.
Unfortunately, this post came right on time. We’re going to have to prioritize our payments just in case we can’t make them. I agree with the order too.
This is a great post and something everyone needs to think about. I know someone in a tight financial situation and he would benefit from a lot of these tips. Thanks!
Interesting… but may I add, if you’re that low on cash, I’d suggest the food bank prior to buying groceries. There are a lot of options out there to meet that need which will help reduce costs.
Thanks for the awesome tips!
The food bank is a good idea. I’m sure it won’t apply to everyone and lots of people will be ashamed to go for it, but it’s there! I have to admit that I did like the city-sponsored baby formula we were getting years ago when our daughter was born. The powder costs a couple hundred dollars per month!
Thanks for a great guest post, Frank! In our case I think I would be able to sell the car and go back to using public transportation, and keeping up the house payments would be a definite must to keep the roof over our heads. That would be a huge loss were we to default on the mortgage.
Good thinking! I used to live in New York and owning a car over there was an inconvenience rather than a convenience. Public transport was so much faster while parking was either impossible to find or super expensive.