Everyday Cheapskate

If you don't have enough money to pay all of your bills, which should you pay first, and which ones can slide for a while? Allowing bills to become delinquent is wrong, but available cash can be stretched only so far. You need to know how to prioritize in a way that will cause the least amount of long-term damage and keep you in the best position to eventually catch up.

Rule of thumb: Do not make payments on nonessential debts when you have not paid essential ones, even if your nonessential creditors are breathing down your neck.

Essential debts: If not paid, these could produce severe consequences. Determine which debts are essential and prioritize them according to the severity of the consequences for non-payment:

1. Family necessities. This means basic food and unavoidable medical expenses, including health insurance. These expenses should be kept to the absolute bare bones.

2. Rent or mortgage. Assume your landlord or mortgage lender will proceed to evict or foreclose if you are late. Home equity and other loans secured by your home are essential debts, too. Real estate taxes and insurance must also be paid.

3. Utilities. Pay the minimum required to keep essential utility services from being

disconnected.

4. Car payments. If a car is necessary to keep your job, making the loan or lease

payment is the next priority. You must also keep up to date with insurance.

5. Child support. Paying child support is absolutely essential. Not paying can land you in jail.

6. Other secured loans.

You know a debt is secured if you signed a security agreement. If the property is something you cannot live without and the creditor might take it for non-payment, keep that debt current.

7. Unpaid taxes. If the IRS is about to take your paycheck, bank account, house or other property, you need to set up a repayment plan immediately.

Nonessential debts: These are lesser and have a significantly delayed effect if you're late in paying. Your credit file will be affected, but a blemished credit report is easier to live with than being thrown out of your home or having your car repossessed.

8. Student loans. Delinquent student loans backed by the U.S. government bring collection remedies like seizure of your tax refunds and special wage garnishment.

9. Credit cards. Your accounts can be closed and, if the debt is unusually high, you may be sued.

10. Loans from friends and relatives. You have a moral obligation to pay. Have an honest talk; explain your situation and your repayment plan.

11. Medical, legal and accounting bills. These debts are rarely essential unless

you are receiving necessary treatment from the provider to whom you owe money. Keep up the minimum payments so these services won't be cut off.

Your role: As a good steward, don't allow your emotions to dictate how you handle your money. Do not hide, and do not lie. And do not take your situation personally. When things turns around, keep the promises you have made to your creditors, your family and to yourself.

Mary Hunt is the founder of www.DebtProofLiving.com, a personal finance member website. You can email her at mary@everydaycheapskate.com, or write to Everyday Cheapskate, P.O. Box 2099, Cypress, CA 90630. To find out more about Mary Hunt and read her past columns, please visit the Creators Syndicate Web page at www.creators.com.

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