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When you come up short one month, here’s how to prioritze which bills to pay first

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If you’ve ever faced a situation where you realize you won’t have enough money to pay all your monthly bills in full and on time, you know what a stressful experience it can be.

A job loss, health crisis or even an unavoidable emergency expense can quickly throw you off course financially if you’ve been living paycheck to paycheck.

The last thing you need is to have what is most essential to you taken away or to ruin your credit.

But there are ways to triage the situation so as to minimize the negative fallout.

The most important thing you should do is let your creditors know you’re in a jam.

“Communicate with everyone you owe and let them know what has happened in terms of your financial setback and how long you think it will impact your budget,” said Bruce McClary, a spokesperson for the National Foundation for Credit Counseling and a former certified credit counselor.

The reason, he said: “If you’re honest about it and willing to have a conversation, that can lead to solutions you otherwise would not have known about.”

For example, companies to which you owe money may offer to let you skip a payment without penalty for a month or two, or only require you to make partial payments until your financial situation improves.

They also may direct you to lower-cost company offerings or outside programs that provide financial assistance if you qualify (e.g., Low-income Home Energy Assistance Program (LIHEAP).

There are two bits of good news in your favor.

Generally speaking, your creditors would ultimately rather keep you as a customer in good standing than have to go through the process of closing out your account and sending it to collections, McClary said. “There is a mutual interest in helping you keep things on track.”

Also, if you’re only going to be in a tight spot for month or two, there’s a good chance you won’t have your account closed, your insurance policy terminated or your credit hurt. (But to be sure, ask your creditors at what point might they take punitive actions, such as cutting off service or sending an account to a collections agency.)

Most utility providers, for instance, will not cut off your service for at least a few months and if they report to the credit bureau (not all do) they won’t do so until you’re more than 30 days late, although they may charge late fees, said certified financial planner Linda Robertson, director of financial coaching at Financial Finesse.

Once you know what breaks your creditors will give you, you will have a better sense of how much money you will have to pay across all your monthly bills.

Here is one way to think about how to prioritize your payments:

Take care of basic needs first. Housing and electricity are essential to your health and safety. So is health insurance.

If you own a home, your mortgage is considered a secured loan — meaning your house is collateral and the bank can repossess it if you become too delinquent in your payments. So do ask your mortgage servicer if they can offer you a payment holiday of some sort.

If you’re renting, you can’t afford to be evicted. So, ask if your landlord is willing to cut a deal with you for a couple of months.

Next, take care of bills that help you keep your job. If you can’t get to work without a car or you can’t do your job without having internet or phone service from home, be sure to prioritize those next. The same goes for child care expenses.

If you have a car loan or lease, keep up with those payments so your vehicle isn’t repossessed. And keep up with your car insurance payments so your policy doesn’t lapse — it will only worsen your situation if you get slapped with a big bill after an accident and find you’re no longer covered.

“You want to focus on the things that enable you to keep working because you need to keep the paychecks coming,” Robertson said.

If you’re self-employed, your internet and phone service expenses are on you. But if you’re paying for those services while working full-time for an employer, you might check to see if your company can reimburse you for at least part of the costs, McClary suggested.

If you have automated your bill payments, notify your bank or credit union at least three business days prior to a scheduled transaction to put a temporary stop to automatic debits until you get your financial house back in order, McClary said. (Here are tips on how to do so.)

Then think about your credit cards: These shouldn’t be your highest-priority bills to pay when you’re up against a wall.

That’s because credit cards are not “secured” debt — meaning nothing can be repossessed from you if your account becomes seriously delinquent. But your credit score can get killed. And with interest rates at record highs and punitive late fees, you will want to do what you can to pay your balances off as soon as possible. And at the very least, try to pay the minimum due.

If you are late with a payment, call your credit card issuer to see if they can waive the late fee, Robertson said. They typically will waive one late fee for every 12 rolling months.

And see if they can temporarily lower your rate. Robertson said she had one client with a $6,000 balance who was laid off. Her credit card issuer agreed to lower her interest rate from 29% to just 2% for six months.

This episode should have you thinking about what other expenses you have that you really don’t need or want. For instance, McClary suggests, if you subscribe to multiple streaming services, you might cut those you don’t watch frequently.

And do you really need an iPhone 14 when an earlier generation iPhone might work just as well for your purposes? You might also call your phone provider and let them know you’ve seen promotional rates far better than what you pay, and ask what they can do for you to keep you as a customer, Robertson said.

If your financial troubles, however, are due to a chronic problem with making ends meet rather than a temporary situation brought on by unforeseen circumstances — consider getting help.

The NFCC can pair you with an accredited financial counselor. The counselor can review your budget and finances and make recommendations for how to better set things up going forward. The initial review is typically free, and beyond that someone using ongoing counseling services may pay $35 to $40 a month on average, McClary said.

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