Ideally, you need to know how to prioritize bills regardless of your financial situation. It helps you be more cautious of where your money really goes. But most of the time, people pay attention to their bills because they know that they don’t have enough finances to meet every single one.
This is exactly what happened to a lot of Americans when the pandemic and recession happened. It was bad enough that the pandemic compromised the income of businesses and workers. It became worse because it led to a recession that caused more than 22 million workers to be unemployed. Not to mention the number of businesses that had to close down for good.
So now, a lot of people have to face their monthly bills with limited finances to pay it off. If you are like these people who had their income compromised, what can you do? Obviously, you can’t stop paying off your bills. But if you have to pay it off, what will you prioritize?
Hierarchy of bills to prioritize
Your bills won’t really care if you’re still trying to improve your financial situation. The billing statements will not stop coming just because you are in the midst of a crisis. All your financial and credit obligations will expect you to meet every single one of them.
How will you prioritize bills if there are so many of them to pay for and you have limited cash with you? Take note that this won’t include the discretionary expenses like your food, groceries, etc. The bills that you will prioritize here are those that come in statements each month – whether it’s a fixed amount or a variable one.
So how can you rank these bills according to priority? Here are clues that will help you prioritize bills smartly.
Highest Priority: Housing, Rent or Mortgage bills
Among all your bills, you have to prioritize shelter. As long as you have a roof over your head, you should be okay. So make sure you put aside the money for your house first.
If you are renting, you can talk to your landlord or landlady about your financial situation. But the chances that they will agree to help you out will be very slim. After all, it’s their rental income that’s on the line. So if you are renting, it’s best to just prioritize this. Otherwise, the owner will probably kick you out.
Now, what if you own your home but you’re still paying the mortgage? This is easier because you know that continuing to make payments would help build equity in your home. By paying this first, you are technically increasing your net worth. This is a good motivation for you because failing to pay your mortgage could mean losing your house to the bank.
Medium Priority: Utility Bills
Next to your house are your utility bills. This includes your electric, water, gas, and other utilities that you need to survive. You don’t want to lose these utilities because it will compromise the comfort of your family. So you need to make this a priority.
While this is a necessity, you can do something to make these bills more affordable. You can make an effort to consume less each month. That way, you won’t have to pay a lot.
This is a win-win situation for you. Conserving energy and water is good for the environment. That should make it easier for you to make sacrifices to lower your monthly utility bills.
Lower Priority: Credit & Loan Debts
The truth is your debts will always be important. But when it comes down to it, it’s more important for you to survive. So when you prioritize bills, this would have to end up as your least priority.
Of course, you have to know what will happen if you can’t pay off your debts. Your interest rate and the penalty fees will make your balance go up. If you have mostly credit card debts, it has a high-interest rate. That means the increase would be quite significant the longer it takes for you to continue paying it off. It will also cause damage to your credit score.
In case you are in a dire financial situation, just talk to your creditors and lender. They have financial hardship programs that will help you pay off your debts despite your limited resources. That way, even if you choose to make this the least priority among your bills, it will not cause really big damage to your credit history.
You can also opt to use a debt relief program that will make your monthly payments more affordable. For instance, you can use debt consolidation. Or if you need a reduction in your balance, a debt settlement will also be a good option for you.
3 tips to prioritize bills
It’s not complicated to prioritize bills. But it can be an intimidating task. Because you know that no matter what, if one of your bills is left unpaid, it would have negative consequences.
To help minimize these effects, here are some tips that you can use.
Always stay on top of your bills
Even if you can’t pay all of your bills, it’s still a good idea to pay attention to everything. You have to make sure you know what will happen to your bills if you can’t pay it off. What penalties will you have to pay off?
This is important information that you need to know. It’ll help you with damage control in case your financial situation picks up. You can immediately act to help pay off the bills that you prioritized.
Minimum payment is better than nothing
If you can manage it, why not just pay off the minimum of your bills? This is especially true for your debts. You can call your creditors and lenders one by one, you need to make them aware of your current situation. It would be one less thing to worry about if they allow you to stop payments for a certain period.
But in case they don’t, it’s okay. Just try to meet the minimum payment for each one. It doesn’t matter how you prioritize bills, make sure each one is paid every month so you can minimize the negative effects on your credit score.
Boost your source of income
It’s easy to feel defeated if you are in a bad financial situation. But instead of waiting for things to get better, you might want to be more proactive.
If you need to prioritize bills because of limited financial resources, you just need to boost your income. You have to find gigs or online work that you can do on the side. It doesn’t matter if you still have a job. This extra money will help your finances in several ways. It can give you extra cash to pay off your bills. It can help you boost your savings. And it can even eliminate the need to prioritize bills.
There’s also the option to get extra cash through benefits. Like what 33.5 million Americans did when they filed for unemployment benefits. If you can get these benefits, it will really help you make ends meet during a tough financial situation.