If I'm financially struggling, what should I pay first? My bills or my loans?

Has a life event caused you to start struggling with your finances and you're now wondering if you should prioritise one certain bill or loan over the others? Is this the only option you feel is available to you?

What if there is actually a much better approach to this difficult situation?

The good news is, there is.

There are far more effective ways you can get through this challenging time without juggling your payments and potentially defaulting on some of your commitments.

To help, we've put together a simple 5 step plan to assist you in the best possible way.

Either check out our summary infographic below which highlights the steps for you, or for more detailed information, scroll further below.

 

1. Make a list of all of your outstanding bills and loan repayments 

First, you need to be very clear on how much you need to pay, when it's due, it's frequency and what your total income is. Now record all of this information in an organised way, in one central place.

To ensure you capture everything, make sure you check your bank and credit card statements, as it can be easy to forget small regular debits such as afterpay or netflix.

Here is general list to get you started:

Household Bills - Electricity, Water, Gas, Phone, Internet 

Credit Cards, Store Cards, Afterpay  

Personal Loans,Car Loan,Home Loan

Fines/Rates

Subscriptions/Memberships - Gym, Pay TV, Spotify etc.

Once you're crystal clear on all of your debts, move onto step 2.

man calculating loans and bills

2. Contact the providers straight away - starting with any debts that are secured

This is the most important step of all 5 steps.

The sooner you contact them, the quicker you can negotiate with them and get an agreed plan underway.

Start with any loans that are secured, such as a home loan or a car loan, and then move on to your unsecured loans and utility bills.

Each provider should have dedicated hardship officers who are trained to help customers caught in this difficult situation.

They may be able to organise a payment plan for you, alter your loan payments or postpone your payments for an agreed timeframe.

It's important you explain why you are having difficulty making your payments, how long you believe your financial problems may continue and what you feel could be manageable for you during this time.

3. Don't jump into borrowing more money to pay your bills

If you are struggling to pay your existing bills, don't rush into borrowing more money until you completely understanding your financial situation.

Sometimes a debt consolidation loan can help, but there are times where taking out another loan is not the best long-term solution.

Firstly do a budget to understand your income and expenses. If that doesn't help you get clarity of your situation, then you can contact a free financial counsellor provided by the Government to help.

Their details are: 

Name: National Debt Helpline

Phone: 1800 007 007

Website: http://www.ndh.org.au/

 

calendar marked with when pay is due

4. Cancel luxury expenses where possible

If you have any ongoing expenses which aren't essential, such as Netflix, Foxtel or a digital music service like Spotify, then contact them to find out if they can be cancelled immediately.

As much as these are nice to have, it's important to cut back on expenses that are not essential and use those funds towards reducing your other ongoing bills and loans.

If you're locked into a contract, then still ask them if they have any other options for customers facing financial hardship, as you may be able to negotiate a reduced service.

5. Remember - providers want to help!

The most common reason people don't contact their lenders and bill providers is that they wrongly believe they can't offer any help or are just not interested.

This is definitely not the case, and if there is a way a solution can be agreed to, this is always the best option for both you and the provider. As the saying goes - something is always better than nothing!

If you do still choose to avoid paying your bills or loans, and not contact your providers to discuss your situation, be warned this will inevitably put you in a worse financial and stressful position. 

One serious impact will be that your credit rating will reduce and you could be faced with having bad credit. This ultimately means your ability to get credit, borrow or obtain a utility service can become much harder. For more information, you may be interested to read our blog, "What can I do to fix my bad credit".

We hope our 5 step process has provided you with a clear way to manage your finances and get you back on track.

Please know that at Fair Go Finance we are always here to help.  We understand there are life events that can affect your ability to repay your loan with us, so please contact us if you are ever faced with this situation and we will work through it together with you.

 

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