When I was a child, receiving snail mail would really make my day—whether it was a letter from a penpal in a distant land or the latest issue of the zoo’s newsletter, the postman was my best friend.
These days, the only ones writing me love notes have “bank” in their name, and they all seem to be interested in only one thing.
If you’re getting flooded with bills lovingly sent from the desks of admiring banks, telcos and other companies but only have so much you can pay each month, you’re in big trouble.
While you definitely need to figure out how to make ends meet, in the interim, tackle your bills in this order to minimise damage.
1. Pay the necessities for survival
The first bills or expenses you should pay are those you absolutely need for survival. That means expenses that must be paid to keep you from being cast out on the streets or starving to death must be paid.
This includes rent, any transport costs you need to pay in order to get to work, electricity, water and groceries.
What constitutes a “necessity for survival” really depends on how hardy you are. The less you can survive on, the quicker you can free up resources for your other bills.
This might mean sleeping without the air conditioning on, not eating out anymore, taking the MRT instead of taxi, cancelling cable TV and looking for a cardboard box to live in.
Extra note: When your insurance premiums are due, it’s probably best for you to try your best to pay them rather than let the policy lapse, as getting into an unfortunate situation now could seriously decimate your finances.
2. Repay secured loans first
You might be receiving bills from credit card providers, hospitals and even your hairdresser. But unless they’ve actually started harassing you with threats of legal action, you might want to think twice before paying them off.
The first bills you should channel your resources towards paying are secured loans, including any additional facilities such as secured overdrafts that might be piggybacking on your loans.
That’s because if you don’t pay your housing loan you could end up losing your home. Technically, just failing to make one loan repayment on time is considered default, although there is typically a 15 day grace period.
The same goes for your car loan. Miss too many repayments and you’ll find yourself back on the MRT. If you’re having serious trouble repaying your car loans, it’s probably best to sell the car and cut your losses unless you’re dependent on it for your livelihood. Since, uh, you could end up with no car either way.
Tip: If you’re having temporary trouble repaying your loans, call up the banks and ask if they can defer your repayments or offer you a better interest rate until you get your act together.
3. Pay unsecured loans starting with highest interest ones
Most of your other bills will be for unsecured loans. This frequently includes education loans, personal loans and credit cards.
Picking which one to pay first can be like deciding whether to stab yourself with a knife or a parang.
Fortunately, repaying your loans in descending order starting with the one with the highest interest makes the decision-making process less emotional. Just do the math and mechanically pay up.
Some of the highest interest loans you’ll want to look out for include credit card cash advances, which can charge interest in the region of 28%. Now you wish you’d used your ATM card instead, don’t you?
The next most expensive type of loan to keep unpaid is usually credit card expenditure, not only because of the interest rates, often in the region of 25%, but also because you get slapped with a late payment charge every month if you don’t cover the minimum monthly payment.
(The lower your bill, the sooner you might want to pay this down, perhaps even before tackling the credit card advances, as a late payment charge of $55 would make up even more than 3% of the amount you owe. It’s just dumb to pay a $55 late payment charge every month on a $100 credit card bill.)
Once you’ve made the minimum monthly payment on all your credit card bills, work on paying them off in full starting with the one with the highest interest rate.
Even if you’ve stopped using a particular credit card, compounding interest can inflate your balance faster than a Ferrari can inflate your ego, so until your balance is zero you’re not safe.
Other unsecured loans like personal loans and education loans tend to carry lower interest rates, so those are the bills you want to work on next.
Tip: While banks aren’t exactly human, you do have some room to negotiate, as dragging you to court is a pain for them (although, admittedly, not as much as it is for you). Calling them up and negotiating for a lower interest rate or deferred repayment is worth a shot.
4. Medical and another bills
Doctors, dentists, lawyers and contractors are, unfortunately, not your friends when it comes to your financial health.
And when the bills start rolling in, you’ll discover just why Dr X is always smiling from ear to ear whenever you show up at the hospital.
Such bills may not always incur interest, but they often do. If you’re already struggling to pay off your credit card bills, it’s probably better that you not reach for the plastic to pay off these other bills, as the interest rate is likely going to be much higher on credit.
Tip: If your creditors have started threatening to refer your case to a collections agency, it’s probably a good idea to call them up, explain your situation and ask if a repayment plan can be worked out. These guys usually just want to see that you’re not going to do a Houdini on them and will generally be happy to help you work out a way to give them their money, even if it takes some time.
Have you ever struggled with paying down debt and how did you cope?
Keep updated with all the news!
Get the latest personal finance tips and tricks delivered to your inbox!
We promise never to spam you!