Choosing Which Debts to Pay in a Crisis

If you find yourself in a financial pinch and must decide which bills to pay and which to delay, there are a couple different scenarios to consider.

Communicate with your creditors to let them know the circumstances. See if they can work with you on arranging a temporary repayment. Perhaps place your account into forbearance until you can get back on your feet. Federal student loans will generally allow someone to place their account into forbearance for 12 months at a time. Up to 36 months until they are no longer struggling financially.

This is a much better option than letting the account become delinquent. Pick up the phone and start asking questions about your options.

The idea of putting lower interest rate student loans into forbearance to focus on paying down higher interest rate credit cards, may be appealing, but only do it if you really need to. Don’t use this when you can afford to pay. You never know when you may urgently need the forbearance option.  Life is full of surprises. Contact your loan servicer to inquire about forbearance. If you have a Direct Loan through the U.S. Department of Education the forbearance process may be performed online.

Automotive loans will sometimes allow a borrower to miss a payment periodically without consequence. If the borrower asks in advance of the due date. Always make the request before the due date. Other types of loans allow for this, but it varies from lender to lender. It never hurts to ask, but ask before the due date.

If the delay is up to 30 days make sure you pay the bills that report on your credit report if you can. Prevent the damage of late payments reported on the credit report. Which would occur if you are 30 days or more delinquent. This would include credit cards, mortgage, automotive loans, student loans, anything that reports on your credit report. Next focus on accounts that charge late payments if one day late. You do not want incur late fees on top of what you already owe for the monthly payment. Although I would gladly pay a late fee rather than be reported late if I ma choosing between tow accounts. You can always ask for the late fee to be waived later.

Being late on utilities, cell phone, cable, internet, etc. is less of a concern since they are not reported to the credit bureaus. You are not likely to experience a service turn-off if you are only a month or less behind. Check with your service provider to be sure. Make sure you are familiar with any late fees that may be imposed.

However, if the situation is longer term and you need to make tough decisions for 60 days or more – focus on the necessities. Food and utilities are more important than paying credit cards. Do not go hungry or live in the dark. Supporting ourselves and family takes precedence over paying debts.

About the Author: Patrick Ritchie loves teaching about credit; he is the author of The Credit Road Trip and The Credit Road Map series of books. Check out his free online classes at www.CreditLiteracyProject.com.

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