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 or perhaps place your account into forbearance until you can get back on your feet. 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.

 

In fact, I like the idea of putting low interest rate student loans into forbearance to focus paying down higher interest rate credit cards. Contact your loan servicer to inquire about forbearance, if you have a Direct Loan through the U.S. Department of Education the entire forbearance process can be performed online in most cases.

 

Automotive loans will often 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, just remember it never hurts to ask.

 

If the delay is 30 days or less make sure you pay the bills that report on your credit report or the ones that charge late payments if one day late. You want to avoid being reported late on your 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. You do not want incur late fees on top of what you already owe for the monthly payment, so even if you are not going to be 30 days late, even being one day late could cost you a chunk of change, although I would gladly pay a late fee rather than be reported late.

Being late on utilities, cell phone, cable, internet, etc. is less of a concern since they are not reported to the credit bureaus, and you are not likely to experience a service turn-off if you are only a month behind. 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 such as food and utilities. Do not go hungry or live in the  dark. Being able to support ourselves and family takes precedence over paying debts.

 

Have a mortgage or credit question you would like for me to cover on this blog? Shoot me an email so I can address it. If you want to apply for a mortgage in Arizona give me a call at 480-203-4641, the application process is easy, and it only takes 10 minutes for me to get the information to get you started on your way to home ownership.

Patrick Ritchie
Mortgage Finance Instructor

Ritchie School of Real Estate Finance

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