Are you feeling less confident about the future? The Thomson Reuters/University of Michigan consumer sentiment index released on Friday shows that confidence among Americans fell to a nine-month low in April. This comes despite a red-hot stock market and improving home prices. So what gives?
A good number of people look at their paychecks and don’t see reason for optimism. Others are weighed down by student loans, emergency medical expenses or other unplanned bills, leaving them to wonder which bills to cover first.
If at all possible, I encourage you to continue socking money away into your 401(k) and keeping another pile of cash available for emergencies. But if you are up against a financial wall, take a breath and make certain to pay your most important bills on time. Here are some tips:
Categorize your bills into essential and nonessential expenses. Essential expenses are those critical to your survival, such as food, housing and medical care. Non-essential expenses might include credit cards or other revolving debt, phone bills, subscriptions, cable television, etc. As you prioritize what to pay first, keep the following in mind:
Always pay family necessities first. This includes things like food and essential medical expenses. You should look for ways to minimize these expenses, such as packing a lunch instead of eating out, requesting generic prescription medication when available, or taking advantage of mail-order programs.
Pay housing related expenses next. If possible, stay current on your mortgage or rent payments, as failure to pay can lead to foreclosure or eviction. Likewise, continue to pay other housing-related expenses such as property taxes, homeowners’ insurance and association fees. Utilities also need to be paid, and you can reduce utility expenses by raising your thermostat a few degrees during the summer, washing dishes by hand and limiting use of your clothes dryer.
Maintain car payments and insurance. If you have easy access to public transportation, you might consider selling your car to reduce your monthly expenses. If you do need to keep your car, you’ll want to keep up on your loan or lease payments, as well as your auto insurance. Shop around to see if you can reduce your insurance costs.
Other necessities include:
Child support payments: Failure to stay current on child support payments can result in costly court appearances, the garnishing of your wages, or even imprisonment.
Income taxes: This is a high priority; you are responsible for paying any income tax due that is not automatically deducted from your wages. Filing your annual income taxes is also required, even if you cannot afford to pay the balance due.
Once you have satisfied your essential debts, you can allocate remaining income to things like:
Student loans: While not necessarily a top priority, student loan payments should be maintained if possible. Failure to pay student loans can result in the seizure of tax refunds and the likely decline of future requests for student loans and grants.
Credit card debt: This includes credit cards, department store cards and gasoline cards. Making minimum payments on these “loans” only extends the time it takes to repay the balance and will result in increased fees and interest. Prioritize these cards by paying off those with the highest interest rates first. Once one card is paid off, focus on the next one. But be sure to put the cards away to avoid getting deeper into debt.
Medical and professional service bills: Bills to attorneys, physicians, hospitals and accountants would be included here. If you find that you don’t have enough money to pay them each month, try and negotiate either a lower monthly payment, a reduced balance, or both.
There are other bills that that may be essential, such as life insurance, childcare expenses and clothing. Each family needs to determine how essential these expenses are, and which of them can be reduced or eliminated.