What Bills Should You Pay? Feed The Bear First!

28 Dec What Bills Should You Pay? Feed The Bear First!

Christmas is behind us and the bills are coming. If the bills are longer than your paycheck’s reach, which ones get paid and which ones deferred? To protect your family, you might have to overcome instinct.

The lesson is this: Face your problems head on, but tackle the biggest threats first. Don’t allow a voice on the phone scare you into believing a smaller credit card bill is more important than paying your mortgage. The mortgage is the 1,000-lb. Grizzly Bear compared to the yapping Chihuahuas of your credit card bills. Feed the bear first.

Instinct tells us to find a solution that takes care of the most problems we face. At some primal level if you are facing ten threats and can solve eight, we feel safer — our survival might have depended on it. Today that instinct to “solve” 8 out of 10 problems could make the situation worse.

Take for example a family with a stack of bills that add up to $3,000. Let’s say it’s about $200 each on six credit card bills, $400 on a signature loan with that used-to-be-nice finance company, $500 on a two car loans and $900 for the mortgage. But there’s only $2,000 coming in this month to pay them. And the credit card and finance companies are calling for their money.

Instinct drives you to take care of the most threatening problems first. And to solve as many as possible. Based on the daily phone calls with their real or imagined threats to do something evil to you, those late credit card bills seem to need the most attention. You can “solve” all those with the money you’ve got if you just put off paying the cars and mortgage. You might even be able to throw in a partial payment to the finance guy. That’s solving 7 out of 10 problems and the phone calls stop.

It’s even easier to make this call if you were up-to-date on the car loans and the mortgage. You know they “probably” won’t repossess or foreclose if you are just one behind. And you’re pretty sure a tax refund will help catch those up.

And of course you don’t want your credit score hurt by having all those overdue accounts? Then the late fees accumulate and the monthly payment next month will be even higher and less manageable. All probably true.

Unfortunately, those concerns — while real — should not overcome basic survival needs. In a perfect world, you should worry about your credit score. But if you are already overextended, a good credit score is almost worthless. It’s an asset with no value now.

Focusing on scratching many itches can be one of the most dangerous ways to address a debt problem. If the money can’t stretch far enough, eventually you will have to deal with it some other way. That may be through a credit counselor (a reputable local nonprofit, please!) or it may mean filing bankruptcy. (Please ignore debt settlement operations, virtually none of them work and their costs are outlandish.)

But deal with it you must. And in the meantime, the biggest real dangers to your family come from losing their home and transportation — not the threat of being sued by unsecured lenders.

Keep in mind in most states your car can be repossessed without much or any real notice if you are in default. In many states, a foreclosure on your home can take place in only a few months once you fall behind. These lenders don’t have to call and yell at you, they just take your things away.

Also, if you have an adjustable rate mortgage that you might wish to have modified under the government’s voluntary work-out plan, you will normally need to be current on your mortgage in order to be considered.

The lesson is this: Face your problems head on, but tackle the biggest threats first. Don’t allow a voice on the phone scare you into believing a smaller credit card bill is more important than paying your mortgage. The mortgage is the 1,000-lb. Grizzly Bear compared to the yapping Chihuahuas of your credit card bills. Feed the bear first.

Update: This blog has been picked up by the Carnival of Everything Finance #10 edition. The Carnival has a remarkable 70+ articles on personal finance issues in that edition alone. My thanks to Tushar Mathur for the plug.

 

Photo Credit: Wingchi

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I have been a bankruptcy attorney since 1989. Our firm represents consumers filing bankruptcy almost exclusively, although I have represented bankruptcy trustees as well as creditors. For 2017-2018 I am also serving on the American Bankruptcy Institute's Commission on Consumer Bankruptcy. If you live in Eastern Missouri, visit our website, send an e-mail or give us a call (314) 781-3400. Our website: STLBankruptcy.com
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