Guest Blogger, Barb Wollan, Family Finance Specialist
This week, we welcome guest blogger Barb Wollan. Barb is a Family Finance Specialist with ISU Extension and Outreach and her blog relates to weighing priorities during times when money is tight.
As we focus on what we can control in our personal finances, the most obvious thing we control is our spending. Due to COVID 19, you may have already cut back on some of your normal expenses, like entertainment, but when money is tight, these cuts may not be enough. Choosing your top priorities is critical. Prioritizing includes considering all necessary expenses like groceries and utilities, and it often requires us to separate the things we need from the things we want. Before skipping a bill or making a partial payment, start by getting a complete picture of all your bills and debts – total monthly payments, total owed, current standing (i.e. are you currently caught up), and interest rate or fees for late payment.
The next step is to consider each bill’s importance. All bills will need to be paid eventually, and it is never desirable to leave bills unpaid or partially paid. However, in times of real financial shortfall, people sometimes have to make tough choices. So how do you choose among your many bills?
Consider what you have to lose if a bill is unpaid. Losing housing, core utilities or a vehicle is generally the greatest possible loss to a household. Therefore those payments may be top priorities for many families. By contrast, getting behind on a credit card account or medical bill payment plan may not affect your immediate well-being. Missing a payment could hurt your credit report, but you can recover from it. Due to COVID 19, some of your service providers and creditors may be offering assistance to extend your payment deadline and/or help reduce your payment obligations. In most cases, making a minimum payment is better than making no payment. Missing a payment has different consequences on your credit report. Plus, some consequences start immediately, while others may only start after a significant delay in payment. For example, some auto lenders repossess a vehicle after a single missed payment while others wait 60 days. If you take advantage of a COVID-19 payment assistance option, there are a few factors that will determine how creditors report your account to credit reporting companies, learn more about credit reporting under the CARES Act.
In addition to prioritizing among your existing bills, it is also wise to consider what bills you will or will not continue to incur. You may have ongoing monthly subscriptions to video services, cable, newspapers, program memberships or mail-order clubs. Stop and think about whether to continue them during this time. Those are often things we enjoy, and we don’t like the idea of giving them up, but if you’re worried about paying the car insurance or water bill, then it’s appropriate to include these subscriptions as you consider options. Consider your bills that have temporarily stopped, like childcare or federal student loan repayments that are suspended until September 30, 2020. How can these savings be used to pay priority bills? And don’t forget your bills on autopay, if you want more flexibility to prioritize your bills consider removing the auto payment.
If you have to miss a bill payment, check out the website of your service providers or creditor to see if they are offering greater payment flexibility. And as much as you might dread the phone call, communicating with creditors is essential if you cannot pay on time. The fact that you called and explained your situation will make a huge difference in their willingness to work with you. This is especially true if you have previously been a reliable customer. Creditors recognize the losses people are facing during this unprecedented crisis. Consider these suggestions for a conversation with a creditor:
- Be prompt – call them before your payment is due.
- Be honest with them – tell the truth without embellishment or exaggeration.
- Ask if they have a pandemic relief option, or a “hardship plan”, that would increase payment flexibility or reduce or eliminate the fees or interest that come with late payments.
- Be realistic about your options. If they ask you about when you will be able to make your next payment, give a realistic answer.
- Keep a record of what phone number you called, who you talked with, the date and time of the conversation, and what exactly was agreed.
- Monitor your credit report. The 3 national credit reporting companies are offering free weekly online credit reports through April 2021.
Need help with all this? In many communities, a non-profit credit counseling service is available to help you negotiate the process. To find a reputable credit counselor near you, check with the National Foundation for Credit Counseling; either by phone or on-line, they can do a zip code search to find the member agency nearest you.
On Thursday, Barb will share another resource available to help when making difficult financial decisions.