If you're worried about paying bills during a financial crisis, there are strategies to help you manage your expenses while minimizing damage to your credit score. Whether you're facing an unexpected job loss, health problems that prevent you from working, or some other hardship that has created a financial burden, there are steps you can take to help you stay afloat.
What to Prioritize When Paying Bills During a Financial Crisis
When you experience a loss of income, it's important to prioritize your bills and expenses to ensure basic needs are still met. It's typically recommended to pay for things in the following order:
- Child Support
- Income Taxes
- Unsecured Debts
In the case of our current global pandemic where financial losses are being experienced at an alarmingly high rate, many creditors are responding with flexible or deferred payment options. The government has also stepped in with various stimulus efforts to help individuals pay their bills and manage their finances. This could help you determine how best to prioritize your own expenses.
For example, if your mortgage lender is offering deferred payments without penalty, you can breathe easier knowing that this expense isn't a worry for the next few months. If possible, you could then focus on paying down other debt or building up your emergency fund.
Look for Opportunities to Lower Your Costs
Once you've prioritized your monthly payments and expenses, look for opportunities to permanently lower your bills.
For starters, if you regularly pay a loan or have credit card debt, take a look at the rates you pay. Chances are you can save money by refinancing your auto loan or transferring a credit card balance to a lower-rate card.
Next, take advantage of utility company budget plans, cut out premium channels from your cable bill (or cut the cord altogether in favor of streaming options), and shop around for lower-cost insurance policies.
You should also look for non-bill savings opportunities. Consider how much you eat out. You can save by meal planning, creating a list and sticking to it when you shop. Plus, now that many stores are offering fee-free curbside pickup, it's easier than ever to stick to your shopping list, which will help you avoid impulse buys.
Contact Your Creditors Before You Miss a Payment
If you're worried about paying bills during a financial crisis and you already have excellent rates, it's important to contact your creditors as soon as possible. Ideally, you'll want to reach out before your payment is due so you can explain your situation and work together on a solution. Be prepared to estimate how long you'll be experiencing a loss of income. In addition, reassess your budget with your new lower income to determine how much you can reasonably afford to pay each month. The more information you can provide to your creditor, the greater their ability to tailor a manageable payment plan to your needs.
Again, if your financial hardship is specific to the impact of COVID-19, ask your creditor if they've established special programs to help lessen the blow of the pandemic.
Borrowing Money for Paying Bills During a Financial Crisis
If you've streamlined your budget to the bare minimum, worked with your creditors to limit your monthly payments and lower your rates, and you still can't make ends meet, it may be necessary to borrow funds. If you feel comfortable, reach out to family or close friends for financial help. Be transparent about your needs and create a plan for repayment.
If borrowing from friends or family isn't an option, you could try applying for a personal loan or take a loan from your 401k or individual retirement account. Just make sure you factor in that new payment to your monthly budget, and consider the tax implications and fees that come with borrowing from your retirement. Currently, the IRS has made concessions for people who've been financially impacted by the coronavirus and want to borrow from their retirement to help make ends meet. It's important to do your research and weigh the pros and cons of that decision before determining what's right for you.
Your Credit Union Can Help You During a Financial Crisis
As a member of Orange County's Credit Union, you have access to experts who can help you navigate paying bills during a financial crisis. Whether you need guidance on creating a budget, assistance with a current loan, or want to lower your rate by transferring a balance to us, we're here to help. Call, click, or visit a branch to get answers to your financial questions. We're with you all the way.