It can be very stressful to deal with financial obligations. That is why many of us choose to deny the importance of paying our bills on time, and start to hide monthly bills out of sight (and out of mind!). But in order for most of us to get out of debt and subsequently build wealth, we need to gain control over our existing finances first. One way to do this is to prioritize bill payments each month. By doing so we can hope to achieve financial freedom and a life free from stress.
But how do you go about prioritizing those bills? There’s a huge pile of statements sitting on your kitchen table, so which bills get paid first?
How to Pay All Your Bills
Here are a few handy tips for wrestling control over your bills:
- List all the sources of your household income on a piece of paper. It is important that you use net figures (take home pay), that reflect the exact amount available to you each month.
- List your monthly expenses. You can “break them down” into different categories (for example, the vehicle category could include gasoline purchases, car insurance, parking costs and vehicle repairs). By assembling your expenses into a smaller number of categories, you can effectively organize and analyze them. It is much more easier if you will use an online budgeting management system. You now have both a budget and a list of bills to pay. Many of them are probably fixed amounts which you will be paying month after month.The balance of the debt will be such items as credit cards and discretionary spending – we’ll discuss those shortly.
- Time to start paying those bills! Begin by paying the most important bills first (such as your mortgage or rent, property taxes, utilities, phone and cable).
- Write down which bills are due on which day of the month. To keep from missing a bill payment, start by paying your overdue bills first and get caught up on them – this will also help you reduce your interest charges monthly.
- Once the important bills are organized and paid, take a look at your transportation, insurance coverage costs and more “flexible” debts, such as the cost of groceries, clothing, and laundry – the items we consider “discretionary” and that you could cut back on a bit if necessary. Some of those expenses are fixed amounts and will not change dramatically on a monthly basis, but by monitoring your spending within these categories you could determine if the amounts payable are reasonable or might require additional attention.Be willing to compromise and try to spend some of your time “shopping around” for more competitive deals, so you can bring some of these expenses down.
- Then it’s time to calculate the costs of your debt repayment: credit cards, line of credits, student loans, income tax debt, business debt, personal loans etc. Make a list of your creditors and the amounts owing and interest rates charged. You may be shocked to see how much of your left-over income each month goes to debt repayment and the interest charges on such debt.
Handy Bill Paying Tips
- Start by paying down the highest interest rate creditor first – this will decrease interest expenses more rapidly.
- Try to pay more than the minimum payment so you can “get ahead” of the debt.
- It is important that you make a room in your budget for child care expenses, income tax, personal expenses and debt repayment.
- Do not spend money you don’t have! Make sure that your net household income is enough to cover all of the above-mentioned expenses.
- Cut up your credit cards or put them away somewhere safe so you can’t easily access them. If you want to pay down debt, you cannot keep racking it up at the exact same time.
And finally, once you’ve developed a bill payment plan similar to the one I’ve described above, stick to it!
However, if it turns out that in the end: 1) you won’t be able to pay your debt, 2) can’t pay towards the principal, or 3) that it will take you a long time to get out of debt, come and see us. During a free debt consultation, one of our licensed debt relief professionals will inform you about all the debt solutions that are available to you.