I Can’t Pay My Bills: Which Debts to Prioritize First

Like many Americans, you may be staring at a pile of unpaid debts and thinking, “I can’t pay my bills.” Although getting out of debt might feel impossible, especially when your bills exceed your income, there is a way out.

The key is knowing what bills to prioritize first, which should always include your basic needs: food, shelter, transportation, heat and water. The good news is that assistance is available — whether that means having an honest conversation with your creditors, asking your landlord for a payment plan or applying for one of many emergency relief programs in your city or state. Here’s what you need to know if you’re struggling to pay your bills.

What happens if you don’t pay your bills

Every dollar counts when you’re faced with a growing mountain of bills, but at some point, your payment cycle might sound similar to Sisyphus pushing a boulder up a hill. However, knowing the consequences of missing payments can motivate you to make a plan of action.

Here’s what could happen if you don’t pay your bills and have delinquent debt:

• You may be charged a late fee. This is typically the first action that’s taken when you are delinquent on a credit card payment, loan payment or other bill.
• Your service may be disconnected. Your internet service provider or utility company may stop service to your account.
• Your credit report could take a hit. Late payments can remain on your credit report for up to seven years, dragging down your credit score.
• Your assets may be seized. If you have a secured loan or credit card, the lender may seize any assets you put up as collateral, such as your car, home or bank account funds.
• You may be taken to court. If a financial institution can’t get their payment by other means, they may turn to litigation.

High priority bills to prioritize first

Before paying smaller bills, you should always prioritize your basic needs first. Ignoring your housing, auto loan or insurance bills could mean losing access to essential transportation or even safe housing. Not paying your utility bills could result in your inability to keep the lights on or stay warm at night, and ignoring court-ordered debts gives creditors the right to seize almost everything you own.

These four types of debts are classified by the National Consumer Law Center (NCLC) as high priority, as their non-payment could immediately harm you and your family:

Mortgage or rent

Eviction from your home can be very swift if you can’t pay rent on time, while foreclosure can happen even without a court hearing in some states if you miss enough mortgage payments. If you’re a renter, take the time to learn the steps to appealing an eviction notice, some possible lines of defense and the options that may be available to you, such as negotiating with your landlord.

If you own your home and can’t pay your mortgage, you could face foreclosure or lose your home. There are ways to be proactive in delaying or fighting a foreclosure, and you may even be able to negotiate the amount and frequency of mortgage payments. Ask your lender for a mortgage forbearance, which allows you to skip mortgage payments for a period of time. You’ll have to pay back those funds eventually, but the pause in payments can help you get through a period of hardship. You can also check with the United States Department of Housing and Urban Development (HUD) for assistance in keeping up with mortgage payments and avoiding foreclosure.

Utilities

Your access to water, electricity, gas and other utilities could be disconnected after only one missed payment. You have the right to dispute the termination of services, request a deferred payment plan and seek assistance from emergency assistance programs for low income households.

Additionally, you can contact the consumer division of your state utility commission to learn more about your rights regarding any billing issues. Get in touch with your utility companies to learn about available options for relief, such as reduced rates and energy savings programs

Auto loan and insurance

If you don’t pay your auto loan or insurance bills on time, your car could be repossessed after only one or two missed payments, while letting your insurance lapse could lead to being arrested or having your license suspended. You could lose your only method of transportation to work without even being notified in advance, as creditors are not legally required to notify you. After your car is sold, often for far less than it’s worth, you could be on the hook for the remaining amount left unpaid on your loan or the early termination charge on your lease.

However, there may be a way to get your car back after it’s been repossessed. While your rights vary by state, some options could include reinstating the contract, paying the full remaining amount due or even filing for bankruptcy.

Court-ordered debts

If your creditors take you to court for unpaid debts and the judge rules in their favor, your assets could be seized immediately in order to repay them. That includes your home or property, your bank accounts and your wages. In some cases, you could even go to jail for debt.

Parents who owe child support, for example, are legally obligated to keep making payments. The Office of Child Support Enforcement can withhold your income and retirement, set liens on your property, intercept a tax refund or levy your bank accounts. Other court-ordered debts include court judgment debt and criminal justice debt.

Lower priority bills

Although it’s important to pay all of your outstanding debts and monthly bills in full and on time, it is safer to push off payments for credit cards, personal and student loans, medical debts and subscription services. That’s because the consequences of not paying them won’t immediately affect your well-being or that of your family. However, missing these payments is likely to affect your credit score.

Credit cards

While skipping credit card payments can damage your credit score and affect your ability to take out future loans, it won’t typically lead to your assets being seized. For that to happen, your lenders would have to successfully sue you and win a judgment against you.

You can mitigate those consequences by discussing your financial situation with your credit card company and asking them for relief in the form of waiving late fees, lowering interest, pausing payments or working towards a more manageable repayment schedule.

Medical debt

Late payments on medical debts, including bills from doctors, dentists, hospitals and ambulance companies, won’t begin affecting your credit rating until after six months. It’s unlikely to incur high interest rates or late fees, and lawsuits would take at least a year or two, if you’re even sued at all. Most importantly, you won’t be at immediate risk of losing your property or income if you miss a few payments.

There are a few ways to negotiate medical debt through the hospital’s billing department. You may be able to lower the overall balance owed, arrange a payment plan, review your itemized bill for errors or enroll in the hospital’s payment assistance program, if eligible.

Student loans

As a form of unsecured debt, student loans don’t involve any collateral that could be seized if you don’t make payments on time. As a result, being late on your payments won’t immediately impact your day-to-day life, when compared to other more pressing expenses.

However, if you neglect your student loan payments for too long, the bills can pile up and quickly become overwhelming. The good news is most lenders will consider a request for deferment, forbearance or a modified repayment plan. All you have to do is call and make that request.

Federal student loan borrowers may qualify for an income-driven repayment (IDR) plan, which bases your monthly payment on your current income and family size. If your income is low enough, you may not be required to pay at all.

Personal loans

Like student loans or credit cards, personal loans are another form of unsecured debt that is not backed by any assets. As a result, defaulting on your monthly personal loan payments won’t lead to the seizure of your home or other assets. However, because it is an unsecured form of debt, you are probably paying a higher interest rate. To avoid racking up unmanageable interest and late fees in addition to the principal you already owe, reach out to your lender as soon as possible to discuss your options.

Subscription services

While you won’t lose your property if you don’t pay for your Netflix account or other subscription services, you’re better off reassessing whether you need them in the first place. If you can’t cancel those services and put the funds directly toward paying off more essential debts, you could also request a temporary hold.

Contact your internet service provider to see if they offer hardship assistance or a low-income plan. If you need to temporarily suspend your internet services, visit your local library to take advantage of their free internet access.

Steps to take right now

No matter how much you may feel in over your head, there are some simple steps you can take to regain control over your life and your finances.

Step 1: Prioritize your bills

Start with your basic needs. Since housing, food, utilities and transportation are essential to the day-to-day safety and well-being of your family, pay those bills first.

Step 2: Create a budget

Of all the tools in your arsenal, building a realistic budget to pay off debt can be the most powerful way to manage your money while helping prevent financial problems in the future. Once you map out where your income is coming from and what you’re spending it on, you can identify any gaps and where you might need to cut back.

The good news is that anyone can create a budget, even if you live paycheck to paycheck or juggle a lot of debt. Start by recording all your monthly sources of income, bills and expenses. Sort out what you spend your money on by category, such as clothing, food, housing and recreation, and prioritize them accordingly. Next, write down your financial goals, whether it’s paying off student loans, going on a trip or saving up for a house.

Step 3: Contact your lenders

You may be pleasantly surprised by your lenders’ willingness to help if you can’t make your payments in full or on time. The sooner you have that conversation, the better, as falling behind on payments can damage your credit score. Consider asking them to waive late fees, reduce your interest rate, allow you to delay or reduce payments or avoid reporting your account to credit reporting agencies.

Make sure to disclose your current financial situation. This includes information about your employment, income, expenses and assets. Discuss how much you can afford to pay and how soon you think you can go back to a regular payment schedule. As with any financial contract, it’s best if you can confirm any new terms you’ve agreed upon with your lender in writing.

Step 4: Seek assistance

Seek out financial resources that may be available to you at the federal, state and local levels and that can help relieve some of the pressure on you.

• If you’re struggling to make your monthly rent, check your eligibility for emergency rental assistance programs available in your state or territory.
• The Low Income Home Energy Assistance Program (LIHEAP)  may be able to help with heating or cooling bills.
• Check social services agencies in your state to learn about assistance with a wide variety of needs, including food, housing, child care, medical and dental bills, prescription drugs, and even job training.
• Check with your state’s unemployment insurance office to determine your eligibility for unemployment benefits.
• For help feeding your family, check the Supplemental Nutrition Assistance Program

Step 5: Start making progress

Building a manageable budget is important, but it’s only half the battle when it comes to making progress. Getting back on course requires that you actually follow the plan and make consistently smart financial choices along the way.

Make it a priority to stay on track. Use budgeting apps to keep yourself organized and track your expenses so they don’t fall out of alignment with your goals. It can also be really helpful to run your budget by a trusted friend or family member who can keep you accountable.

Step 6: Next steps

If your debt has reached a point where you feel absolutely overwhelmed despite your best efforts, consider some of these other options:

Credit counseling: While a credit counselor can’t offer you funding, they can help you build a more manageable payment plan and navigate challenges like eliminating fees or handling calls from debt collection agencies. Look for a reputable nonprofit organization such as the National Foundation for Credit Counseling (NFCC) .

Debt settlement: Before getting to the point where you might be sued by your creditors or have to declare bankruptcy, you could consider debt settlement. This involves offering a significant lump sum to your creditors that is only a percentage of the entire debt that you owe. You can choose to do this yourself, but if you hire a debt settlement company, look for one that is associated with the American Fair Credit Council (AFCC).

Debt consolidation: Debt consolidation involves taking all of your outstanding debts, which may be charging multiple rates of interest, and combining them into a single, more manageable monthly payment at a much lower interest rate. This can not only decrease how much you owe but also cut down on the time you need to repay your debt.

Bankruptcy: While bankruptcy usually involves the cancellation of all your debts and can bring you considerable relief from your financial troubles, it may also mean forfeiting your property in exchange. It is also a significant blow to your credit rating and will remain this way for a considerable period of time. As such, it should only be considered as a last resort.

There are two primary types of bankruptcy procedures: Chapter 7, where your assets are sold to pay your creditors, and Chapter 13, which involves a three- to five-year, court-appointed debt reorganization plan where you continue to make repayments.

I can’t pay my bills: FAQ

What should I do if I lose my income?

If you lose your income, you may be eligible for unemployment benefits while you look for another job. Check with your state’s unemployment insurance office.

What should I do if my bills are more than my income?

If your bills exceed your income, you may look at ways to negotiate the amount of your payments, cut down on any discretionary expenses or seek assistance through local or regional emergency relief programs. You can also consider increasing your income, whether it’s by taking on more shifts, getting a second job or asking for a raise at your current place of employment.

What COVID-19 resources are available to me?

Financial resources related to the coronavirus pandemic, including extended unemployment benefits offered by the federal government, have now ended. However, you may still be eligible for unemployment benefits or other programs from your state or territory.