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The No. 1 rule on how to prioritize your bills

CNBC Select breaks down the three categories of debt and which you should prioritize paying off each month.

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If there was ever a better time to know how to prioritize your bills, it's now.

With millions of Americans unemployed amid a growing pandemic and economic recession, learning what bills to pay off first and which ones can wait will help you when every dollar counts.

To find out how to prioritize your debt, CNBC Select turned to the National Consumer Law Center's (NCLC) online resource, "Surviving Debt." 

The digital book, which is available for free during this time, provides tips and debt management advice for people who struggle to pay their bills. The NCLC categorizes different types of debts into high, medium or low priority so you know which to focus on paying off first when you're in a bind.

When it comes to managing your bills, the NCLC's number-one rule is to: "Prioritize debts whose non-payment immediately harms your family."

Below, we dig deeper into what exactly this "number-one rule" means and the NCLC's three categorizations of debt.

NCLC's No. 1 rule

The NCLC's number-one rule essentially means to first pay off any bills that would have sudden and severe consequences for you and your family if they weren't taken care of immediately.

While it's important to keep up with payments on all your bills, there are some that are more time-sensitive than others. These would fall under the high priority category, which we break down below.

If you find yourself unable to make the full payment on a high priority bill, the NCLC suggests negotiating a lower payment on these types of debts so that you don't face your car being repossessed or your lights shutting off.

First category: High priority debts

Your high priority bills are the first categorization of debt that you should pay attention to. These fall under the NCLC's number-one rule, where nonpayment of these debts could cause immediate harm.

We outline what the NCLC classifies as high priority below:

  • Court judgment debt (when a creditor sues you for unpaid debt and the judge rules you owe a certain amount)
  • Criminal justice debt (fines or fees issued by courts or the state that you haven't paid, such as a traffic ticket)
  • Car loans or leases
  • Rent payments
  • Utility bills
  • Child support debts

Second category: Debts that quickly become high priority

This second category of debts are those bills that you could call your lender to delay payment if you are in a bind, but only for so long. After putting off payment for a few months, these bills will start to have more lasting impacts on your financial health down the road, like foreclosure and seizure of your bank account and tax refunds — thus then entering "high priority" category.

We outline what the NCLC classifies as debts that quickly become high priority below:

  • Mortgage payments
  • Property taxes
  • Federal student loans
  • Taxes owed to the IRS

Third category: Lower priority debts

Your low priority bills are those that you pay once you've covered your other higher priority bills. Paying these debts aren't as urgent, as the consequences will not impact your immediate well-being. However, if you're putting them on hold you'll want to let your lender know and prepare to possibly pay extra in fees.

If you have an outstanding balance on a credit card, such as your Chase Freedom® or Capital One Platinum Credit Card; (see rates and fees), contact the respective card issuers before missing a bill payment. A series of missed payments can hurt your credit score over time, but there is likely financial hardship assistance in place right now that you can take advantage of. For example, Capital One cardholders may receive fee suppression and minimum payment assistance, while Chase defers payments, waives fees and increases credit lines for those affected by coronavirus.

The NCLC advises that you should never pay your lower priority debt, like a credit card bill, in placement of your high priority debt, such as your mortgage. 

We outline what the NCLC classifies as lower priority debts below:

  • Medical debt
  • Credit card debt
  • Debt owed to friends and family
  • Private student loans
  • Debt you owe as a co-signer on a loan
  • Deficiency actions after your car is repossessed (the amount you owe when your car is resold for less than what you owed on it)
  • Charge accounts with merchants
  • Small loans of little value

Bottom line

For the many Americans struggling financially right now, use these categories as a guideline for what bills you should prioritize paying off first.

If you can't make the minimum payments on bills, call your lender or credit card issuer to request a forbearance (temporary relief like waived late fees and lowered interest) or a payment plan.

Information about the Chase Freedom® has been collected independently by Select and has not been reviewed or provided by the issuer of the card prior to publication.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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