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Which bills to pay first?

Broadly speaking, if you want to maintain a high credit score (which allows you to get low interest rates on any loan), you must pay all your bills in full.  I recommend that if you have to cut back on luxuries like entertainment, apparel, vacations, etc. (meaning anything that you can do without), you should, because in the long run you will be better off with a flawless credit history.   Having said that, I recognize that there will be moments in your life that you are unable to pay all your bills and have to figure out which bills to pay and which ones to postpone.  The thing is that if you look at the chart below, you will notice that people have it wrong:



chart showing delinquencies over 30 day period


Do you notice that the red line is way below the other two lines?  It simply indicates that there are fewer delinquencies for auto loans than those for credit cards or mortgages.  So Americans are putting their car payments ahead of other debt.  Does it make sense?  Absolutely no.  The bill that should always be paid first is the mortgage.  Why?  Because you always want to have a roof over your head.  On the other hand without a car, you can still use public transportation.  Yes, it is inconvenient for those of us who live in the suburbs (the town where I live has really nothing that will take me to the nearest train station 15 miles away -- but my plan is to ask a friend to give me a ride), but we can survive without a car.  Without a place to live (especially if you have a family with small kids, being homeless is no fun) you are in a lot of trouble.



So how to pay your bills?
  1. Always pay your mortgage on time.  It is better to call the lender and ask them allow you to miss one or two payments so that will give you some cash flow as you organize your finances.
  2. Make only the minimum payment on credit cards.  If that is difficult, call them to ask for more time.  During the meantime they may stop you from using your card, but that is much better than defaulting.
  3. Try to renegotiate your car payment by asking for some grace period or consider surrendering your vehicle.  
  4. Cancel services like cable, newspaper subscriptions, gym memberships, (or in my case, karate school, etc., basically anything that you can cut.