University of Illinois Extension

Managing Your Debt: Deciding Which Bills to Pay First

Having trouble paying your bills? Are you getting overdue notices from your creditors? Are your accounts being turned over to debt collectors? Are you worried about losing your home or car?

When you don’t have enough money to cover your family’s basic living expenses and pay all your bills, you face some difficult financial decisions.

It may be tempting to use credit cards, take out a home equity loan or borrow money to pay bills. But taking on more debt is generally not a good idea. Unless your financial situation turns around quickly, it only puts you further behind and creates bigger problems. Instead, focus on cutting your spending and working with your creditors to reduce your payments until your situation improves.

When you don’t have enough money to pay your bills and other expenses, your spending habits must change. The sooner you change, the more likely your financial problems can be lessened. Your family should be part of the decision-making process, since their cooperation is essential in carrying out your plans.

Sizing Up Your Situation

When you have more bills than you can afford to pay, you need to ask:

  • What do you owe?
  • How much do you owe?
  • Which bills should be paid first?

You need to contact your creditors and explain your situation. Creditors are usually willing to work with you if you contact them before you get behind in your payments.

Before you talk to your creditors, you need to take a hard look at your situation and make some decisions about how much, and when you can pay each creditor. Answer these questions:

  • How long is your present financial situation likely to last?
  • How much income can you count on each month?
  • How much money is needed to cover your family’s essential monthly living expenses?
  • How many creditors do you owe and what is the total amount you owe? Completing the Debts Owed Worksheet can help you get a clearer picture of what and how much you owe.
  • What assets (savings, items that could be sold) do you have that could be used to pay off your debt?
  • What debts are the most important to repay first?
  • What debts could be satisfied by voluntarily surrendering, or giving back, the item?
  • What debts are the most important to repay first?
  • What debts could be satisfied by voluntarily surrendering, or giving back, the item?

Setting Spending Priorities, Strategies for Spending Less and Making the Most of What You Have can help you to answer these questions.

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