How to Decide Which Bills to Pay First

For many Americans, there are times when money is tight, and understanding how to deal with that stack of bills can be very challenging. Each person’s situation is unique, so general guidelines can’t be applied to everyone. You should always be a good steward of your money and spend wisely. The following guidelines can help you decide which bills you should pay first.

1. Food, Medicine and Child Care
Paying expenses related to food, child care and essential medical care should be your first priority. But be careful not to overspend on nonessential items. Child care includes a broad range of expenses, such as school-related costs, proper and appropriate clothing, a safe and comfortable place to live, as well as entertainment and extracurricular activities.

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2. Housing
One of the most important, and largest bill in most households, is the mortgage or rent payments. A mortgage is a secured debt and the consequence of not making timely and consistent payments is significant.

If you own your home, real estate taxes and insurance must be also paid. These expenses may be included in the monthly mortgage payment as part of your escrow account. Any condo fees or mobile home lot payments also should be considered a high priority.

Besides the intense stress, failure to pay these obligations could lead to loss of your residence and a major ding on your credit report, which may inhibit your ability to secure a future mortgage, rental or other high-end purchase at a reasonable interest rate.

3. Utilities
Do the best you can to make on-time payments on essential utilities such as heat, water, and electricity. Working hard to maintain your mortgage or rent payment makes little sense if you don’t have heat, water or power. Carefully analyze other expenses in this category, such as cell phone plans, house phones, Internet and cable TV. Balance out those expenses that are “wants” vs. “needs” and can be reduced or eliminated during a financial crisis.

4. Auto

If your car is used as part of your work commute or other essential transportation, rank your car payment just below food, medicine, housing and essential utilities. Stay current on your insurance payments as well. Failure to do so can have a cascading effect. If you don’t, your creditor may buy insurance for you at your expense–and it will be more costly to you. The key here is buying a car that meets your needs and fits within your budget.

5. Child Support
Child support obligations are court-ordered payments that must be considered high priority from both a legal and ethical standpoint. It’s the court’s responsibility to establish a payment that is fair and equitable for both parties to ensure the safety and well-being of the child. Child support may be used to pay for uninsured or “extraordinary” medical expenses. “Extraordinary” medical expenses include any out-of-pocket medical costs that exceed the cost of a basic healthcare insurance plan, including co-pays, deductibles, and surgery costs.

Even if a child is

attending a public school. There are several fees needed to support school-aged children. Therefore, child support may be used to pay for many school-related needs, such as school clothes/uniforms, tuition fees, textbooks, lunch money. In many states, child support payments are automatically deducted from your pay check and failure to make payment can lead to arrest, and loss of driving privileges and wage garnishment.

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6. Income Taxes
You must pay federal and state income taxes that are not automatically deducted from your wages. You must file your federal and state income tax return, even if you cannot afford to pay any balance due. Failure to pay taxes on time can result in penalties and eventually wage garnishments. To find out about payment plans or to negotiate a settlement with the IRS, visit IRS.gov or visit your local IRS office.

7. Unsecured Debts
Some months, it’s simply not possible to make ends meet; despite

your best efforts. If you just don’t have enough money to meet your monthly obligations, communicate promptly with your creditors to explain the situation and request assistance or extra time to pay. These accounts may include credit card bills, doctor and hospital bills, or other merchant accounts. Explain that your financial situation is precarious, you’re unable to make the payments but you’re working towards a solution. You have not pledged any collateral for these loans, so you are not in jeopardy of losing property. However, these creditors do expect to be paid back. So understand that collection efforts can be persistent and stressful.

Understanding the basics of prioritization is an essential aspect of money management. Ideally, you would always have enough money to cover all of your monthly expenses and still have some left over to save. However, there may be times when you simply don’t have enough money to pay all your obligations, and that’s when you must take the emotion out of your decision making process.

For advice and information on debt management, visit the Federal Trade Commission.