Having debt is not a sin. I’ve been accused of demonizing debt and fear-mongering with my statements on debt, but I believe these criticisms are unfounded. I’ve seen the nasty side of debt and I’m trying to protect you from it. So if you are happy with your debt and don’t ever believe it will be a struggle for you, please stop reading and save yourself some time. You only get 24 hours each day and I don’t want to take the 1% of it or so it might take to work through this article and do what it says. For everyone else, I think today’s article might provide you some useful insight on debt that is rarely discussed.
One of the things I run into regularly in my counseling is someone who truly can’t afford to pay all his/her bills. Whether it is a one-time deal or an ongoing issue, it is an issue with many of you out there. Today I’m going to share my thoughts on how you can prioritize your debts so you can avoid some expensive headaches if (when) something goes wrong. In other words, we’re going to talk about how to make good decisions if something bad happens in your financial situation. The simplest way to do that is to help you determine some priorities when it comes to your bills. Who gets paid if there isn’t enough money to go around?
First, let me lay a foundation and explain the difference in secured vs. unsecured debt. A secured loan is backed by something you will lose if you don’t pay back the loan. Most people know if they don’t make a few car payments that car will magically disappear, courtesy of your local repo man. That’s a secured loan. An unsecured loan is one that has no real backing other than a contract or promise of payment. A common example of this is a credit card. If you don’t pay back a credit card loan, there’s nothing for the company to repossess. So as a general rule, secured loans take precedence over unsecured loans when you have to make priorities.
But let’s go a step further via a quick scenario: if you have $1,500 in hand and are presented with:
- $700 house payment
- $350 car payment
- $500 grocery needs
- $200 utility bill
- $50 Visa bill
Since that math doesn’t work, who gets paid and who doesn’t (for now)? Many would pay Visa first because it is the smallest and they don’t want to get a late fee. That is STUPID. If you can’t eat or keep the lights on, you’ll have a heck of a time paying ANY of the bills.
So here’s your assignment: make a list of every single creditor you owe, how much you owe them (total), when payments are due each month and what the monthly minimum payment is. Then list those debts in order of their priority – think survival mode here. If push comes to shove, who gets paid first? Stop now and make the list…I’ll wait…
Now that you’ve done that, hang on to the list. It is useful to periodically review your priorities…and here’s the thing – you usually make bad financial decision when you’re desperate, and life will sometimes put you there. As the old saying goes, “broke, desperate and stupid usually hang out together.”
So now that you’ve gone through and made your list, it’s my turn. Here’s a general guideline for you to use based on type of debt and its priority. I’ve come up with this list in response to the numerous questions I’ve received from people who have to choose which payment is more important if the math doesn’t add up. This is not an all-inclusive list and to keep things simple, it doesn’t include savings. I hope it will help as a guide and for some discussion.
- Electric/Water
- Groceries
- If winter, the bill for your primary heat source (if not electric). I also then found put that lots of people can use the Green Home Grant Scheme (more info here), so you can easily save a lot of money getting very effective insulation that will save you a lot of money on heating.
- Mortgage
- Automobile (unless the car needs to be sold. If so, SELL IT NOW!)
- Auto Fuel/Insurance
- Clothing/Shoes
- Taxes
- Student Loans (deferment may be an option)
- Credit Cards
- Medical Bills (VERY flexible payment options in most cases)
I’ll close with three thoughts:
- If you have your list that you’d like to send me to look over for input or if you just want to chat about your finances, contact me. I want to help.
- That list, with all those details regarding your debts, is the hardest part of making a workable budget. You’ve jumped that hurdle. So if you haven’t already, sign up for Stacy’s daily emails on the top right side of this page and receive my free booklet on making a budget that works. It will walk you through the rest of the steps and give you worksheets to help. Living on a budget can make all the difference in the world.
- My book, From Debtor to Better: The Details of Debt and How to Get Out! goes into a lot more detail than this post ever could on this and more. In 100 pages or so, I go through all the major types of debt and what you can do to beat them. Why not win over your debt? Let me help.
I’ve heard of people so hounded by creditors that they allow their homes to foreclose and actually go without food for a day (or more!) so they can pay credit card companies who are harassing them – I was shocked! But sometimes I get into that mindset too, if we can cut food costs, family needs costs (diapers, toilet paper, etc) we’d have the money to afford the financial lifestyle we have. But when I think about my priorities again, food, house, water, etc – then I’m not so concerned if a credit card payment is a few days late. It’s hard to keep these in focus when unexpected bills show up or free lance payments come in late. Thanks for posting this 🙂
Some creditors are HARD CORE about their payments. It’s a terrible thing to witness.
Love these articles on debt! I do have some hefty student loans that are on deferment for now. Other than that my only debt is my car payment and a very small credit card, less than $500. I can afford the payment and I pay more than the minimum most months. I have considered going into debt for other things that I really do NOT need. Your words of wisdom have made me stop and think before I have made foolish decisions. Keep up the good work!
Great job on paying extra!! 🙂
While we don’t mind the single car debt or the house debt, we never wanted credit card debt or 2 car debts. While in the military we did pretty well with this ideal. Then we both got out at different times and it became a struggle. ‘They’ always say the first year out is the hardest, and we can attest to that twice! So we were coaxing through life with debt slowly gaining, but we always payed extra to the minimum. Then, someone pointed out how lack of debt is freedom. I never looked at it that way, just saw what we were doing as normal. While we aren’t debt free, nor do we demonize all debt, we have personally found that my husband having to work overtime just so we can pay all our bills is not freedom. We got in over our heads and didn’t realize it till it was too late! P.S. living in Southern California, near Disneyland, was not as good as we thought, while going there a little too often 🙂
Yes, I can see how Disney would call to me on a regular basis too. 🙂
Stacy, I continue to thank you each day for your advice! Thank God for your help for so many. You are a servant of our most mighty God. You spoke to our Women’s Group about 2 years ago & I was impressed with by your knowledge and servant’s heart. May God continue to bless you & your family. Thank you.
Thank you Betty, that’s very sweet. 🙂 Barry and I enjoy working together and I always love his Saturday articles.
Good article!
If I had more bills than income, I think I would be slashing the grocery budget and working on ways to decrease the utility bills. I really think we have a lot of choices in how we spend our money, and unfortunately I think some people make foolish choices. We need housing and food, but we can do without cable and cell phones.
Smart thinking, Kathy! 🙂
I agree with your priority list, Stacy. Have you ever posted on how American dollars actually come into existence? Out of thin air — I mean, out of a printing press or keyboard stroke at the Federal Reserve with the only thing backing it is the labor of current and future generations of Americans. Our money comes into existence in the form of debt and goes out of existence – poof – as default on that debt. Huge topic! I didn’t do it nearly enough justice but our money is not really real, not like gold or silver that someone had to work to get out of the earth and then trade it for someone else’s handiwork. No, it’s fiat and unbacked by anything tangible. Anyway, I’m over the anger stage about our corrupt monetary and banking system and it is what it is. Evil exists in this world in many forms. But my family ultimately is held by the Creator of the Universe who has infinite resources available for those He loves. We will seek first the kingdom of God and His righteousness and He will as he has so faithfully done before provide us with our needs. I no longer worry about our mountain of debt — I have put it along with the rest of our lives at the foot of the cross so that we can joyfully serve our loving Father without the weight of our financial sin of which we have repented and been forgiven and been transformed (and for us it was a sin for us to go into that much debt for a business — we did it because we feared the future instead of trusting Him to provide our needs). So, anyway, that is my story and I am not meaning to give financial advice to anyone. Just wanted to share our story.
Good advice, Stacy.
Thanks for sharing your story, Elissa. 🙂 It always helps to hear where someone else has been and how they’re doing.