Debt Management: How to Prioritize Debt in a Crunch

Most of us face financial crunches from time, and 2020 has been one long crunch for many people. Being short of money and having to pick and choose which bills to pay is always tough. Unfortunately, creditors and debt collectors make it much harder when they pour on the pressure. Your best defense against being bullied or manipulated into routing your money in the wrong direction is preparation. 

Household Debt in Mississippi

Just before the pandemic, US household debt reached a new high: more than $14 trillion. Of course, not all areas and not all households are impacted equally. Even before the pandemic, Mississippi residents were disproportionately burdened with household debt. And, that debt was more likely to be delinquent. A 2019 study ranked Mississippi the worst state for household debt, based in part on 90+ day delinquency rates for mortgage debt, auto loans, credit card accounts and student loans. 

The study put per capita household debt in Mississippi at just over $32,000--nearly $7,000 more than per capita annual income in the state. 31% of Mississippi households have debt in collections, and that rate increases to 42% in communities of color. And, some cities and counties are hit even harder. In Hinds County, the Jackson, Mississippi area, 45% of all households have debt in collections, and that number jumps to 55% in communities of color.

That’s a lot of Mississippi families under pressure to pay debts, being pulled in different directions if there isn’t enough money to go around. 

Debt Management Requires a Plan

If you can’t cover all of your bills and living expenses month-to-month, are in a short-term crunch, or are living paycheck to paycheck and know your situation is precarious, it’s important to take a thorough inventory. You need to know which debts and expenses are most critical and which can wait. But it can be hard to think strategically when you are being harassed by collectors. It's their job to create a sense of urgency, and they are trained not to let you off the phone without taking a payment or at least getting a commitment.

When you’re already stressed and they catch you unprepared, it can be hard to resist that pressure. Unfortunately, that often means that your limited funds go not to your most important expenses but to the debt collector who called first or pushed hardest. Your best defense is to assess your financial situation, prioritize your debts and living expenses, and make a plan before you pick up the phone.

There’s no standard ranking that works for everyone. Your top priorities will depend on what’s most important to you, how much money you have to go around, which if any bills are already past due, and other factors. Whatever the specifics, these steps will help you be prepared to make good decisions. 

1. Inventory all of your debts and living expenses.

It’s impossible to make good decisions about whether to pay a particular bill and how much to pay that creditor in isolation. One of the most critical questions to ask is “What else do I need that money for?” When debt feels out of control and it’s stressful to look too closely, it’s natural to think only about the bills with upcoming due dates. But, that’s a recipe for staying stuck. Take the time to write down all of your monthly living expenses and all of your outstanding debts. Note due dates, amounts due, and the current status of the account. 

2. Decide what matters most

Obviously, we’d all like to pay all of our bills on time and not have to worry about past-due balances, late fees, collections and other financial stressors. But, in a crunch, that isn’t always possible. When that happens, it’s important that you have a clear idea of which accounts are most important. And, if you’re married, it’s important that you get on the same page with your spouse. Money problems can lead to marital problems so you need to work together to come up with a plan.

Obviously, the nature of the account or expense is a key factor. Most people will prioritize food, shelter, and other basic necessities over other expenses. But there are other factors to be considered. For example, what are the consequences of missing a payment? Could a late payment trigger a disconnection or repossession? If so, how important is that service? The answer will vary from household to household. For example, some are reliant on internet service for work or school, while others use it primarily to stream Netflix and watch cat videos. Only you know what’s top priority and why.

3. Talk to your creditors

We frequently recommend talking to creditors as a starting point when you’re in a bind financially, but in 2020 it’s more important than ever. The pandemic has changed the rules with many creditors and service providers, but those changes can be unpredictable. A creditor that has been inflexible in the past may have introduced new options to help people who are struggling financially. Others, feeling the crunch of the recession themselves, may be more aggressive than usual in their collection efforts. Don’t rely on what’s always happened in the past--find out what your options are today. Be sure to keep good records concerning your communications with creditors. Note the number called (or called from), the day, time and name of the individual you spoke with. If agreements are reached, make sure to confirm the agreement in writing. Certified mail is a good way to do this.

4. Make a list

Once you’ve figured out what’s most important to you and what you’re going to have to let slide for the moment, stand firm. Write down how much you plan to pay on each account and when and keep that list handy in case you get a call from a creditor or debt collector. Remember that every collector who calls you will have just one priority--getting you to make payment on that one specific debt. But, in your world, there’s more than one debt. Don’t let the collector’s sense of urgency change your carefully considered priorities.

What if It’s More than a Crunch?

Some financial crunches are just that--a short-term problem triggered by an unexpected expense or a short gap in income. Often, careful management and cutting some unnecessary expenses can help you navigate out of short-term financial stress. But, it’s important to be realistic about the difference. Many people struggle with debt for years before seeking a lasting solution, always telling themselves that things will get better with the next tax refund or when a specific debt is paid down. 

If you’re facing more than a short-term crunch, it’s time to educate yourself. Talk with one of our experienced debt resolution attorneys to learn more about your options. We are now offering consultations from the comfort and safety of your own home or office. We can meet by phone and/or video. There’s no obligation, and that means no downside to gathering the information you need to make good decisions about how to break the cycle of debt stress and move forward. 

Call 877-581-3396 or fill out the contact form on this page to schedule your free consultation.