1. Prioritize your bills. Some bills are essential, while other bills are considered nonessential or borderline. You must determine which bills fit into each of these three categories.
Essential bills are necessary for your survival and must be paid first. These include your mortgage or rent payments, utility bills and food. Child support and any loans such as automobiles, furniture and so forth that are secured or used as collateral to obtain the loans should be included with the essential bills.
Nonessential bills are debts in which no immediate consequences would occur if payments are late. These include unsecured debts such as credit and charge cards, medical bills and newspaper subscriptions.
One of the biggest mistakes I made was paying the creditors who harassed and intimidated me the most and not taking care of the essential bills. Once I grasped the fact that my credit was already ruined, and our family had to come first, I was able to make the right choices as to whom to pay first.
Also, I studied the Fair Debt Collection Practice Act (www.ftc.gov), which showed me what my rights were, and I realized many of these collection agencies were in fact breaking the law. Knowledge gives you power, especially when facing a tough financial situation.
Borderline bills fall into either essential or nonessential categories. You are the judge as to which category these bills should be assigned. When reviewing your borderline bills you must move them over to either the essential or nonessential category, based on the severity of the indebtedness.
If you are unable to pay all your creditors, communication is key. There can be severe consequences for not paying your essential bills. By communicating with your creditors you have a better chance of working out a repayment plan. Creditors have their own policies for delinquent accounts, and what can be worked out will depend on how far behind you are in making payments. Write a letter or call the creditor to explain your circumstances.
A couple, Mike and Brenda, were struggling to make ends meet after Brenda became ill and could not work. Immediately, they contacted their creditors to explain the situation. Most of their creditors, including their landlord, were willing to work out a payment plan.
