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Deciding which bills to pay first

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When you don't have enough money to cover your family's basic living expenses and pay all your creditors, you face some difficult financial decisions.

It may be tempting to use credit cards, take out a home equity loan, or borrow money to pay bills. But taking on more debt is generally not a good idea. Unless your situation turns around quickly, it only puts you further behind and creates bigger problems. Instead, look for ways to cut spending until your situation improves.

When family income goes down, your spending habits must change. The sooner you change, the more likely your financial problems can be lessened. Include your family in the decision-making process because their cooperation is essential to carry out the plans.

Sizing up your situation

When your bills are more than you can pay, you need to contact the people to whom you owe money — your creditors — and explain your situation. Creditors are usually willing to work with you if you contact them before you get behind in your payments.

Before you talk to your creditors, take a look at your situation and decide how much and when you can pay each creditor. Answer these questions:

  • How long is your present financial situation likely to last?
  • How much income can you count on each month?
  • How much money is needed to cover your family's essential monthly living expenses?
  • How many creditors do you owe and what is the total amount you owe? Completing the worksheet How Much Do I Owe? (PDF) can help you to get a clearer picture of what and how much you owe.
  • What assets do you have that could be used to pay off your debt (for example, savings and items that could be sold)?
  • What debts are the most important to repay first?
  • What debts could be satisfied by voluntarily surrendering, or giving back, the item?

To help you answer these questions, see Setting spending priorities when income falls, Strategies for spending less, and Making the most of what you have.

Who gets paid first?

You are legally obligated to pay all of your creditors. If you can't pay all of your bills, you must decide how much to pay to each creditor. One way is to divide the money available and pay every creditor a share of what you owe them. This may seem fair, but it doesn't always work because each creditor must agree to reduce the amount they receive and extend the payment period. This strategy also doesn't take into account that some bills may be more important to pay than others. To help you decide which bills must be paid immediately and which ones can wait, ask yourself these questions:


Making your plan work

After you have worked out a repayment plan with your creditors, follow through with it. Make the payments you promised. If you fall behind on your new commitments, creditors will not be as understanding. If you fail to pay as promised, creditors may hire a collection agency or start legal action against you.

Pretending you have no money problems won't make the problems go away. Face the situation honestly. Openly discuss spending decisions with all family members. This will help everyone understand the changes and sacrifices needed for your plan to succeed.

Remember: No matter how bad your situation may be, you can't afford to ignore your bills and creditors. Prompt action is very important. Take charge. Let your creditors know you are having trouble before you miss payments and the situation becomes worse.

Sharon M. Danes, Extension specialist and professor in family social science

Revised by Sharon Powell and Sam Roth, Extension educators

Reviewed in 2023

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