Bills That Are Okay to Pay Late
By Ryan Healy | January 29, 2008
In your own debt reduction journey, you may discover that finances get tight occasionally. And during those times, it is helpful to know which bills are okay to pay late and which are not.
Let me say plainly that I believe you must make every effort to pay all your bills. If you have the financial means, you should not delay or withhold payment. But lacking money, certain bills will take priority over others. So this is the hierarchy I personally use to pay my bills.
#1 - Taxes
Most importantly, the government gets paid first. They are the nastiest creditor you will ever encounter. Failure to pay them could land you in court, prison, or both at different times.
When I lost a substantial amount of money in a vending business, I was audited by the IRS. The loss was large enough it triggered an audit flag. The IRS agent spent a few weeks going back and forth with my CPA and examining my books. In the end, I was found innocent of any wrongdoing.
But here’s the kicker: My taxes were paying for the IRS agent’s time, I incurred additional fees from my CPA for dealing with the IRS agent, and yet I was not reimbursed for any of the expenses even though I was found innocent. In other words, the IRS can bring a “lawsuit”–and you still have to pay all your own “court fees” even if you are found innocent. Not very nice.
#2 - Credit Cards
Secondly, all credit cards get their minimum payments. They are notoriously callous and underhanded in their dealings with consumers. If you are late with your payment, you will get slapped with late fees, inordinate interest rates, and insensitive service representatives. It’s enough to make any sane person crazy.
#3 - Auto Loans
Thirdly, pay all auto loans. Most auto loans will have a grace period or default clause. You will need to check the contract you signed to see what terms apply to you. But, in general, you will have to miss two monthly payments before repossession can occur. This means that although you may incur a late fee, you will not lose your car immediately if you are late with your payment.
Still, I place auto loans third on the list because if you lose your car, how will you commute to work and continue to earn a living? How will you get groceries? How will you get to all the important places you need to go? Be smart: pay the car loan and keep the primary means you have of earning a living and paying your bills.
#4 - Mortgage and Rent
Fourthly, the rent or mortgage gets paid. Most rent agreements and mortgage contracts allow a few days of grace to receive payment. When I had a mortgage through Wells Fargo, I would not be charged a late fee until my payment was 16 days late. I took advantage of this grace period on more than one occasion, especially when I was starting up my freelance business nearly three years ago. Depending on your rent contract, you may have three to seven days of grace before you incur a late fee.
If you go beyond the grace period allowed and become seriously delinquent, it can still take a while until you are evicted. In most cases, you will receive a 30-day or 60-day eviction notice.
#5 - Utilities
Fifthly, all utilities get paid. Most utilities do not charge late fees and do not play the shenanigans that credit card companies do. Furthermore, what good are paying utilities if you don’t have a house in which to live?
#6 - Medical Bills
Finally, all medical bills get paid. Hospital and medical bills are last on the list for a variety of reasons.
First, you will have at least 30 days and probably more like 60-90 days to pay the bill before it is turned over to a collection agency.
Second, if you call to discuss your bill, you can usually work out a reduced monthly payment without interest. Even if it is a $300 medical bill, they may allow $50 monthly payments without interest until the bill is paid off.
Third, some public hospitals are required to give service even if the patient can’t pay. Every year, public hospitals write off millions in unpaid bills. You should not purposefully take advantage of this; it is there to protect the poor and the homeless who may need medical care but obviously can’t pay.
Still, hospitals and medical establishments are much more likely to reduce a bill or work out payment terms to help you pay. The most important thing to do is communicate with them so they know what’s happening. If you are proactive and communicate, they will probably not send your bill to collections.
Wrapping Up…
So, now you know the order in which I pay my bills when I’m short on cash. And you also know more about which bills it’s okay to pay late. Keep in mind, my analysis may not apply to your unique circumstance, so this is not to be seen as any kind of personal advice.
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Topics: Credit Cards, Debt |
10 Responses to “Bills That Are Okay to Pay Late”
Comments
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January 29th, 2008 at 1:02 pm
I think you should pay rent/mortgage before credit cards - you aren’t going to be made homeless if you don’t pay the credit cards.
January 29th, 2008 at 4:11 pm
I’ve never had to do this myself, but I know people who couldn’t afford to pay their taxes and simply wrote the IRS a letter say, “Hey, give me a break.” And it actually worked. (He was a fitness trainer working out of his own gym — so he collected his own taxes).
If I remember correctly, the person wrote in the letter, “I would love to pay my taxes, but I ate them…. After rent, food, car, there was nothing left. I’m going to put in an extra 10 hours a week of work. I’ll be able to pay the bill by X date. I’m not trying to cheat you, I just need some more time.”
I do appreciate the Canadian system that allows business owners until July to file their taxes.
January 29th, 2008 at 5:25 pm
I agree with Plonkee above, you should pay the necessary survival bills first, mortgage, utilities, and vehicles. You need your house and vehicle to live and travel to work, and you need electricity to keep the perishable food safe, and water for necessary cleaning. The last thing I would pay is credit cards, even if you do incur some late fees. The credit companies are going to charge you anyway…so you just need to do what’s necessary to survive.
January 30th, 2008 at 8:34 am
Plonkee & Lee - Thanks for sharing your perspective. I guess my view is that you can be a few days late on a mortgage payment without penalties and without losing your house. That’s why I think it makes sense to pay credit card bills first if you need a few extra days.
Now, if you’re going to be excessively late, then that’s a whole other story.
John - I think the IRS (in the U.S.) is willing to work with some taxpayers, but a person may still face interest or late payments even if the IRS gives that person more time. I’m not sure though.
February 3rd, 2008 at 2:34 pm
[…] Bills That Are Okay to Pay Late @ Debt Reduction Formula - I disagree with the order of these, I’m all for taxes, mortgage/rent, utilities, in that order. […]
February 3rd, 2008 at 7:18 pm
Yes, credit card companies (or more accurately, the collectors after 180 days) are very persistant and will do their best to make your life miserable until you pay your debts. However, since the debt is unsecured, you don’t go homeless or lose your car if you don’t pay!
The mortgage should ALWAYS come before unsecured debt like credit cards… unless you have somewhere else to live when your house gets taken. After seven years, the credit card debt is gone when the statute of limitations is up. Seven years of refusing to pay mortgage payments and you’ll be homeless.
February 10th, 2008 at 10:43 am
I am an international student in America. I’m at college right now and I’m over 18.
I’ve been paying my cell phone bills really late due to a problem with my credit card. Do I lose credit in America for that?
February 10th, 2008 at 10:52 am
I am an international student in America. I’m at college right now and I’m over 18.
I’ve been paying my cell phone bills really late due to a problem with my credit card. Do I lose credit in America for that?
February 11th, 2008 at 9:00 am
Hi Dale - If you pay your cell phone bill really late, then chances are it will impact your credit score at some point. It all hinges on what you mean by “really late.” Are we talking one day? One week? One month?
The best thing to do: call your cell phone company to find out if your bills have been turned over to a collections agency. If they have, then your credit score has probably already been impacted.
February 19th, 2008 at 8:01 am
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