Paying bills is fun for exactly no one. But that doesn’t mean it’s something you can just ignore. Even if you’re unable to pay all your bills this month, you still have to come up with a plan of action. Here are some tips for prioritizing monthly bills.
Compile All Your Bills in One Place
There’s a lot to consider when you don’t have enough to pay all your bills for the month. While this is obviously not an ideal situation, you still need to push forward and find a solution that will at least allow you to continue functioning.
The first thing you should do when you need to prioritize paying certain bills is simply gathered all your bills together in one place. It’s important you do this for a couple of reasons. First, you’ll be able to better gauge the exact amount you owe in total, as well as for each individual bill. Although people who are sticking to a budget typically do this anyway, you’ll want to revisit your monthly bills if you’re in a situation where not all of them can be paid.
Once you have all your bills in one place, you can start parsing through which ones are the most essential to pay first.
What Are the Highest Priority Bills?
You really want to be paying all of your bills off in full each month. Not paying bills can lead to several negative outcomes for consumers, such as fees, interest expenses—or even having debts eventually go to collection. Ultimately, you’re going to have to pay a price one way or another for not paying your bills.
But people who are currently in a situation where they’re not able to meet all their financial obligations for the month need to make some choices. Sometimes this can be an easy decision, especially if you have several bills for non-essential services, such as gym memberships, cable, or other unnecessary recurring costs. But what happens when you’ve run out of these, and you’re only left with important bills? You have to start looking at which of these bills are truly the highest priority.
The National Consumer Law Center (NCLC) has some advice for determining how to prioritize your bills. Here are their three suggested categories:
- Top-Tier – These are bills that will lead to serious, immediate repercussion if you don’t pay them, such as trouble with the law, loss of a job, or harm to your family. Some examples of highest-priority bills are court judgments, tickets, car loans, rent, utilities, and child support. Failure to pay these can lead to instant problems that might follow you for years.
- Second-Tier – These are bills that are still really important, but won’t cause you the same level of damage from non-payment as the top-tier debts, such as mortgage payments, property taxes, student loans, owed taxes.
- Bottom-Tier – These are all debts that you should pay, and can become a problem if you don’t address them for long enough, but don’t come with the same level of urgency as the first two groups. For instance, medical debt, credit card debt, store accounts, and debt owed to relatives.
As already mentioned, you don’t want to slack on paying your bills if you have the money to do so. People who have no other option, however, should consider prioritizing their debts in a hierarchy similar to this.
If you’re able to cover the first two tiers, and are struggling in the third, think about which debts make the most sense to tackle first. Some people like to reference the debt snowball and avalanche techniques for dealing with lingering bills. The snowball has you take on your revolving debts in order of size. So you pay off the smallest one in its entirety first, while just making the minimum payments on the rest. There’s some evidence to show this provides a psychological benefit that leads people to following through and getting out of debt.
You can also consider the avalanche method, which has you take on accounts based on level of interest rates. Doing this can save you money, as you’re eliminating more future accumulated interest. But it doesn’t have the same emotional boost as the snowball.
Don’t let your bills get even more out of hand. Taking a firm stand and figuring out how you can get your finances under control will help you in the long run. If you’re really struggling, reach out to a credit counseling agency for advice.