If you don’t pay your cell phone bill, what’s the worst that’ll happen and when?
Are some bills less critical than others in the grand scheme of keeping a head over your roof and avoiding bankruptcy?
In the short-term, yes. But know that paying bills late—no matter which ones—can really damage your credit record and score. However, if you’re in a major bind and need to temporarily pick and choose, here’s a hierarchy of periodic bills that need to be taken care of first and those that can wait.
Starting with the most important, these are MainStreet's suggestions:
REAL ESTATE TAXES
If you own a home and you consider it your most important asset, you have to pay real estate taxes…or else! A municipality has the right to issue a lien certificate or property deed on your home if you’re delinquent on paying your property tax, which is usually due quarterly. Failure to pay your property taxes is the quickest way to lose your home, more than being late on your mortgage, in fact, since tax liens takes precedence over a bank mortgage.
No one likes a visit from the repo guy. Auto loan companies send these predators out to nab your vehicle without warning in the event you default on your Prius (Stock Quote: TM), which may be equal to just one missed payment depending on the terms of your contract. Car loan defaults are up about 15 to 20% since last year. Seeing as how a car gets you to work and work brings in money, this is one debt you really can’t afford to ignore. If you think you’re going to fall short on money next month, call your creditor and see if it will temporarily ease your terms or help you refinance altogether. If you’ve got a parking ticket, make that a priority too. Failure to pay on the due date could get your car towed.
This is a close tie with your car payments. But what gives the mortgage slightly less precedence is because there’s a little bit more time between a missed payment and a repossession. First things first, if you think you’re going to be late on your mortgage, call your bank and ask for some relief. Maybe the lender will help you refinance or cut you a break for the month. If you miss a payment one month, no one’s really going to come after you right then and there. Most likely, you face a late fee plus last and next month’s mortgage at the same time. Slip up more than twice and it gets ugly. Banks usually start foreclosure proceedings after three months of missed payments.
If you don’t pay your monthly rent on time, the next day the landlord will likely send you a notice to quit and offer you just five extra days to come up with the money, plus any late fees. Otherwise, you’re expected to move out. But realize that a notice to quit is not a court paper and legally speaking nothing will happen to you if you don’t pack up and go. At that point, though, the issue gets more serious. The landlord will probably issue a summons and complaint letter, which legally starts the eviction process. You’re expected to either defend yourself in court or do nothing and lose by default. Soon after a marshal will then show up at your door and order you to leave.
STORE CREDIT CARD
A store credit card probably carries a higher interest rate than any other type of credit card. While creditors won’t come to your house and take away that merino wool sweater you still haven’t paid off using your Banana Republic (Stock Quote: GPS) card, the interest and fees on that debt will fast balloon. Note also that being more than an hour late on these bills gets engraved on your credit report and knocks points off your credit score. At the least, pay 10% more than the required minimum payment so you’re a) contributing to the principal and knocking down the balance and b) curbing phone calls from the collection agencies.
ALL OTHER PLASTIC
Bank-issued credit cards, like American Express (Stock Quote: AXP), Visa (Stock Quote: V), MasterCard (Stock Quote: MA) and Discover (Stock Quote: DFS), tend to carry lower interest rates than store-issued credit cards. That said, if you are late or only paying the minimum, expect that rates to jump, as well, and see your credit score undergo pain. When you’ve gotten calls from the collection agent, that’s when you know your delinquency has hit your credit report. It will likely stay there for about seven years.
This is relatively “good” debt considering it carries a smaller interest rate than most other financial obligations and it won’t harm your credit score. Plus, loan officers may allow you to defer payment on federal loans if your financial situation proves particularly dire.
It usually takes four or five months of non-payment for the cell phone provider to send the collection hounds after you. Until then, you face late fees and a bill that gets even scarier.
In the grand scheme of things (considering your house and car), how important is paying to watch the Tudors on Showtime? If you can’t afford cable, quit while you’re ahead. Before you actually need to miss a payment, just cancel it. Do what I do and download missed episodes for $1.99 on Apple’s itunes (Stock Quote: APPL). Or watch it on your rich friend’s flat screen.
Your heat is more important than your HBO (Stock Quote: TWX), admittedly, but the reason utilities rank lower here is because you may be more likely to avoid punishment for a missed payment. If it’s the dead of winter and you’re experiencing financial hardship, know this: During the winter, utilities are prohibited from shutting off your heat. Further, if you’re a senior citizen, are part of a low-income family with an infant or have a serious illness, your heat must stay on at all times, despite missing the payments. Also, in most, if not all states, if your landlord is behind on paying the building’s utility bill, it’s not your fault and you should still receive running water and heat. No matter what, call the utility company and explain your situation to get some assistance. Generally utilities can stop offering their services after 25 days of delinquency.
YOUR COPY OF DREAMGIRLS FROM BLOCKBUSTER
Unless you want to be forced to buy it, feel free to keep that DVD rental from Blockbuster (Stock Quote: BBI) for 30 days. Blockbuster’s policy says if customers don’t return a rental, they will have to buy it, but otherwise, if brought back within 30 days, it just costs a $1.25 restocking fee. How this company makes money is another story.
Portions of this article appeared in a previous MainStreet post.
Catch more of Farnoosh’s advice on Real Simple. Real Life. on TLC, Friday nights at 8 p.m.