Become Debt-Free

Short on cash waiting for the next stimulus checks? Here's how to prioritize paying your bills

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More than 30 million Americans remain unemployed amid the ongoing coronavirus pandemic, which means many people are looking to the federal government to help them pay bills and stay afloat during these unprecedented times. 

But while the latest relief proposal from Senate Republicans does include another round of stimulus checks, it may be a while until you actually see that money. The Health, Economic Assistance, Liability Protection and Schools Act, also known as HEALS Act, aims to pay $1,200 to individuals earning up to $75,000 and $2,400 for couples earning up to $150,000, as well as an additional $500 per dependent. Those who earn more than those thresholds will receive a smaller payment with the money phasing out completely for those individuals who earn $99,000 and married couples with adjusted gross incomes above $198,000.

Lawmakers and the White House have been in negotiations over the legislation since it was unveiled on July 27. Senate Majority Leader Mitch McConnell (R-Ky) told CNBC a deal will be struck "at some point in the near future," and House Speaker Nancy Pelosi, (D-Calif) agreed the sides will reach a solution, but major differences still remain unsolved on Friday when talks broke down. 

On Saturday, President Trump signed several executive orders that deferred payroll taxes and student loans through the end of the year, as well as provided some eviction protections and enhanced federal unemployment benefits. Many experts and officials, however, question the legality of such actions. 

In the meantime, about 77% of those impacted by the pandemic are worried about being able to pay bills and make good on their loans, according to the latest TransUnion survey of consumers released Friday. On average, survey respondents say they're facing a shortfall of just over $870 this month. 

If you are short on cash, how do you figure out which bills to prioritize? Here's a look at how you can sort out which bills to pay first if you don't have enough money coming in to cover all your expenses. 

1. Figure out what you really need to survive

If you're worried about your income, the most important step you can take is to prioritize what you're spending on, says Tiffany Aliche, personal finance expert and founder of The Budgetnista. While many Americans are waiting for a second round of $1,200 stimulus checks from the federal government, that money isn't guaranteed at this point and may not cover all of your expenses if you do get it. 

First, write down your most basic needs: food, shelter, utilities, medicine, transportation, says Erin Lowry, author of "Broke Millennial: Stop Scraping By and Get Your Financial Life Together." Essentially, what is the barest minimum you need to have in order to get by?

To figure out which bills and expenses you need to pay first and which you can delay, Aliche recommends asking yourself two questions: If I don't make this payment, will I be unhealthy? If I don't make this payment, will I be unsafe? If the answer is yes to either of those, prioritize paying those bills first. 

Shelter, for example, should always be a first priority so that you don't face eviction, especially if you rent, says Evelyn Zohlen, a certified financial planner and founder of California-based Inspired Financial.

2. Check to see what assistance is available

Once you've figured out what is critical to pay immediately, sort through what Zohlen calls "medium importance," bills. These are payments where you may have more wiggle room than you first realize, such as utilities and cell phone service. Many utilities, for example, may give you an extra month to pay before services are disconnected.

You should also check to see if any of those bills can be suspended or reduced through many of the assistance and payment deferment programs that utility companies, cell phone providers, credit card issuers, loan lenders and landlords may be offering right now. 

If you called them up at the beginning of the pandemic and didn't have any success, it's worth your time to reach out to providers again if your financial situation has been impacted by the unemployment boost ending. 

This step can be critical to making your budget stretch further. It doesn't make sense to put all of your stimulus money or your unemployment check toward your mortgage if you have a federally-backed loan that you can defer payment on for six months or a year without racking up fees or interest, Aliche says. 

But you shouldn't stop paying without first making arrangements with your lender, Lowry says. "This is not a situation where it's better to ask for forgiveness than permission."

3. Consider what debts need more immediate attention

Once you've taken care of the basics, and if you still have money left in your budget, look at what other outstanding debts may need to be paid. Lowry says a good way to think about prioritizing the importance of each debt is to determine what can be taken away if you don't pay. 

If you own a car or your home, for example, those assets can be taken away if you don't pay your loan or mortgage. But if you can't pay your student loan or medical bill, you won't lose your education or your good health. "It makes sense to first make payments on the items that can be taken away, especially shelter and transportation, over the ones that can't," Lowry says. 

Prioritizing your bills this way needs to be a temporary strategy, Lowry says, because there may be long-term ramifications,. "Ultimately, if you default on your debts, especially ones that are government loans like federal student loans, you could have your tax refund garnished by the government," she says, adding that the government doesn't need to take you to court to do this. Additionally, other lenders may also sue you over the debt, which can lead to wage garnishment.  

4. Hold off on aggressively paying down debt

Even if you do have money left in the budget after paying for the necessities, don't go overboard in paying down debt right now, Aliche says. This can include your credit card bills and even student loans. Many times, experts will recommend paying above and beyond the minimum payment due so that you can pay down the debt faster and don't incur as much interest over the life of the debt.

But right now, it may make more sense to have cash on hand to pay for necessities, rather than focus on long-term debt. Additionally, the CARES Act that Congress passed in March allowed federal student loan borrowers to temporarily suspend payments until the end of September, as well as dropped interest rates on federal loans to 0%. President Trump also signed an executive order on Saturday that allows federal student borrowers to pause payments through the end of the year

"For the most part, I'm telling people to leave your debt alone. Focus on other things," Aliche says. 

That advice may feel counter intuitive, but you don't know what's going to happen tomorrow, next week or six months from now, Aliche warns. For now, focus on keeping current with your debts, but don't go to extremes. 

5. Reach out for help before you hit the wall

When you're struggling financially, it's easy to think that you're in it alone. But Lowry says it's important to not only reach out to your support networks, but to do it early. Turn to community resources, be open with loved ones and look at websites like AuntBertha.com and HHS.gov for programs and services that may be able to provide help with food, shelter and transportation needs, she says. 

"This is a difficult year for so many. Now is the time to negotiate to pay less, and ask for more help," Zohlen says. Plus there are some bills that may be more flexible if you do reach out for help, such as child care. Do you have a friend or family member who can watch your child, or does a community center you trust offer low-cost childcare services?

"Unfortunately, we so often intertwine debt and morality in this country that people frequently feel a great source of shame about admitting financial hardship and hesitate to reach out for help," Lowry says. "Millions and millions of Americans are struggling right now and needing help is by no means a moral failure."

Check out: The best credit cards of 2020 could earn you over $1,000 in 5 years

Don't miss: How the HEALS Act compares to the HEROES Act

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