Part of paying off your debts is knowing which bills to pay when you can afford to make a payment, especially at this time of year, when you may be expecting a tax refund. If you have a list of debts or your credit report sitting in front of you, the whole thing can look like too much to tackle yourself. However, you can decide which debts to pay by using a simple process that will help keep your credit afloat and get some of your debts paid off in the process.
Pay Necessities First
Obviously, there are bills you have to pay and expenses you need to cover in order to survive. These necessities might include utilities, food, transportation to and from work, your home, and many others. It’s often recommended to make sure your family is fed, pay your utilities first, and then make your car payment and insurance. If possible, try selling your vehicle to get something you can pay for in cash so you can eliminate the car payment and reduce your insurance obligations. Now is also a good time to cut out unnecessary expenses, like cable and memberships that don’t involve contracts.
Pay on Open Accounts
If you have accounts that have yet to go into collections, make sure to pay those. These are the accounts that can affect your credit rating the most, either negatively or positively. The ones that are in collections do need to be paid, but they aren’t a priority because, at this point, you can’t save the account. Further, if you have any accounts that are behind, take this opportunity to attempt to bring them up to date. Accounts with late payments can result in extra fees and increased interest rates, which end up costing your more.
Paying Off Debts
As you can, try to pay off debts after your necessary bills have been covered. If you have paid your cost of living for the month and made the payments on your open accounts, pick one of your smaller debts and try to reduce the debt by negotiating with the creditor. In this way, you can pay off one debt at a time. When the smaller ones are paid off, you can negotiate for payments on larger accounts and apply the funds you set aside for debts to those accounts each month.
Clearing up your credit can be a slow process, but if you are making payments on open accounts and pay off your debts on a regular basis, you will start to notice your numbers change in a regular pattern. Most important in determining which bills to pay, is considering which ones are necessities. You may be in debt, but you don’t have to suffer in order to pay them.
If you are finding that your debts are too overwhelming, you may want to consider bankruptcy. We can help you figure out whether this is the best option for your situation.
How do you determine which bills to pay? Please share with us in the comments.