ALABAMA A&M and AUBURN UNIVERSITIES

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WHICH BILLS TO PAY IF YOU'RE IN A BIND

AUBURN, Dec. 31---If you fall behind on paying your bills, the impact on your credit report could harm you for years. Even after you've paid your debts, your poor credit rating could prevent you from buying a car or even renting an apartment.

Be very careful to avoid being 90 days or more late on any bill. Some creditors write accounts off as bad debts when they're that old, and the mark on your credit report will make it hard to get credit. If you are juggling expenses, these bills should definitely take precedence:

  • Child Support. Paying child support is critical to maintaining your credit history. By law, credit bureaus must report any information received about overdue child support, as long as it's verified by the proper agency, and isn't more than 7 years old.

    A bad credit rating may be the least of your worries. Law enforcement agencies can intercept your tax refund, garnish your wages, put a lien on your property, and suspend your driver's license. If you can't pay because of a financial crisis, you should go to court to see if you can get your payments reduced.

  • Mortgage. If you are more than 90 days late on your house payments, it will probably end up on your record. Mortgages also tend to have hefty late-payment fees, and if you miss two or more, your lender may start foreclosure proceedings.
  • Car Loans. You shouldn't fall behind on these payments, either. In some states, your car can be repossessed after only one missed payment. If your car is worth more than you owe, you may be able to refinance your loan with lower monthly payments. If not, your lender may agree to a temporary schedule of reduced payments. Most of the major auto financing companies let a borrower with a good payment history and a reasonable repayment plan either skip a few payments or refinance. Before calling a lender, draw up a plan for getting back on schedule.
  • Taxes. The IRS can be rough if you don't pay on time. If you're notified you owe past-due taxes, make every effort to pay as quickly as possible. If you can't pay, contact the IRS to arrange a repayment schedule. If you can't pay because of a genuine hardship such as heavy uninsured medical bills or lengthy unemployment, you can petition the IRS with an "Offer in Compromise" by which you repay only a portion of the total back taxes owed. You'll need to seek the services of an accountant.
  • Bank Credit Cards. Mastercard and VISA cards are valuable references on your credit report. Pay them on time, even if you only make the minimum payment. Once you are able to pay all of your bills as they come due, make a plan to pay off the entire balances on all of your credit cards. It is very costly to carry over balances from month to month, and it can lead to serious problems.
  • Department Store Cards. Most will accept lower payments for a few months.
  • Utilities. Utility companies may be willing to work out a modified payment schedule for a short period, if you can't pay on time. But you may have to put up larger security deposits for future services.
  • Student Loans. Federal student loans may be deferred if you're having financial trouble. If your loan is deferred, you won't be required to make payments, but you can't qualify for deferment once your loan is in default, so don't wait until you're behind in payments to apply. Continue making payments until your request is approved.
  • Medical Bills. Most medical bills aren't reported to credit bureaus until they're sent to collection agencies. You can probably work out a payment schedule with the doctor or hospital. Just be sure to confirm any agreements in writing and ask for confirmation that reduced payments won't be reported to the credit bureau.
  • Small Bills. Set aside small bills, such as magazine subscriptions and book clubs, but be sure to contact the creditor if you think the account will be turned over to a collection agency.

    Until you can pay all of your bills on time, STOP using credit of any kind. Take your credit cards out of your wallet, put them in an ice cube tray and freeze them. Also, STOP trying to borrow yourself out of debt. Look for additional income by getting a second job, or a job with more pay. Use your hobbiesand skills to produce extra money. Have a yard sale, and sell any unused vehicles or other items. Then apply this money to your debts.

    If you are thinking of consolidating your debts, first consider a home equity loan. If you get a home equity loan, pledge to yourself that you will not use your credit cards or any other form of credit until you have completely paid off your loan; if you get into debt trouble again before paying off your home equity loan, you could lose your house.

    Last, but not least, think of your bill problems as an opportunity to learn from your mistakes. Think of the stress, loss of sleep, conflicts and worries that have resulted from your financial problems. A definition of insanity is to continue doing what you've always done, but expecting different results. If you continue to do what you've been doing, you'll continue to get what you've been getting--more of the same kind of stress and worry. You don't have to live the rest of your life that way; resolve to make some changes in the ways that you handle money to see that such problems never happen again.

    No, you're not a victim of bad luck. Luck has nothing to do with it; pay attention to what's happening, and think about what you're doing before you do it.

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    SOURCE: DR. FRED WADDELL, Extension family money management specialist, Alabama Cooperative Extension System (334) 844-3244.