How to decide which bills to pay first

When income falls short, the goal is to minimize immediate personal and legal harm: avoid eviction, preserve transportation for work, keep the lights on, and maintain essential insurance and health care access. Below is a practical hierarchy many financial counselors use, followed by why each item gets its place and what actions to take.

Practical payment priority (starter template)

  1. Housing: mortgage or rent
  2. Utilities and basic household services (electric, water, gas)
  3. Food and basic household necessities
  4. Health care and required health insurance premiums
  5. Secured loans essential for income (car loan if you need the vehicle to work)
  6. Child support or alimony (court-ordered obligations)
  7. Tax debts (federal and state) and other government-owed amounts
  8. Insurance premiums not already covered above (home, auto if critical)
  9. Unsecured consumer debt (credit cards, personal loans)
  10. Student loans and other non-accelerating debts (but see notes below)

This ordering is a framework — individual circumstances change the ranking. For example, if you work from home and don’t need a car, a car loan drops in priority. If a student loan is about to enter default and you have available relief (forbearance), it may be moved lower.

Why this order matters

  • Immediate personal harm: Missing housing or utility payments can cause eviction or services to be cut within weeks, creating a crisis that’s far more expensive than falling behind on a credit card.
  • Loss of income: If missing a payment threatens your ability to work (e.g., car repossession), that loss compounds other problems.
  • Legal enforcement: Court-ordered obligations such as child support have strong enforcement mechanisms (wage garnishment, contempt), so they often must be paid or actively negotiated.
  • Government collections: Tax authorities can place liens, seize refunds, or garnish wages — but they also offer structured relief options. The IRS and many states have collection alternatives; consult IRS guidance when tax balance is involved (see IRS.gov).

Authoritative resources: the Consumer Financial Protection Bureau recommends contacting creditors early to ask about hardship plans and outlines options for negotiating payments (CFPB). Federal student loan borrowers should review relief and forbearance options at U.S. Department of Education’s StudentAid site (studentaid.gov).

How secured vs. unsecured debt influences choices

  • Secured debt (mortgage, car loans). Lenders can foreclose or repossess collateral. Prioritize obligations where nonpayment leads to immediate loss of essential assets.
  • Unsecured debt (credit cards, medical bills). These typically result in late fees, higher interest, and collection activity — serious but usually slower and reversible through negotiation.

Special cases and legal priorities

  • Child support and alimony: Treat as high priority; enforcement is aggressive and penalties severe.
  • Taxes: Tax debt consequences can include liens and levy. But in many cases the IRS offers installment agreements or temporary relief — don’t ignore these balances (see IRS.gov).
  • Federal student loans: Since 2021–2024 there were unusual federal pauses and changes; by 2025 borrowers should check current repayment rules and forbearance options at studentaid.gov before deciding to deprioritize.

Immediate steps the first week you encounter hardship

  1. Triage accounts: List all monthly obligations with next due dates, collateral, and legal consequences.
  2. Create a bare-bones budget for essentials (housing, utilities, food, medicine, transportation).
  3. Call top-priority creditors immediately — many offer hardship plans, temporary forbearance, or reduced payments if you request help early. The CFPB recommends documenting calls and getting agreements in writing.
  4. Ask about postponement options, interest-only payments, fee waivers, or short-term forbearance rather than simply missing payments.
  5. Explore emergency assistance (rental assistance, utility relief, community programs) and unemployment benefits where applicable.

What to say when you call creditors (sample script)

“Hello — my name is [Your Name]. My income has dropped due to [reason]. I want to avoid falling behind. Do you have a hardship program, forbearance, or temporary payment reduction? What are the options, and can you confirm any agreement in writing?”

Ask specifically: reduced minimum, waived late fees, temporary paused interest, and how long relief lasts. Keep records: date, representative name, and reference number.

Negotiation and repayment strategies

  • Prioritize a partial payment to critical creditors — even a token payment shows good faith and may delay harsh enforcement.
  • Use discretionary cash to protect the top three priorities (shelter, utilities, transport for work).
  • Consider reallocating payments: shift from unsecured accounts to those keeping you housed or employed.
  • Seek written plans: verbal promises are easy to misinterpret.

When to consider formal relief options

  • Bankruptcy: If liabilities far exceed realizable assets and income, bankruptcy may be an option but has long-term credit effects. Bankruptcy can sometimes discharge or restructure certain debts; for details see our article, “When Bankruptcy Can Discharge a Loan: Limits and Process“.
  • Structured repayment plans: For tax debt, the IRS offers installment agreements and other relief (IRS.gov).
  • Student loan resolutions: Before stopping payments, check federal options at studentaid.gov and consider loan rehabilitation or income-driven repayment plans.

How to avoid repeating a crisis: preventive steps

Common mistakes to avoid

  • Waiting to contact creditors — early outreach preserves options.
  • Prioritizing low-interest but nonessential debts over housing or income-preserving obligations.
  • Relying solely on credit cards to bridge a long decline in income — that increases vulnerability to interest and collection.

Final checklist before you act

  • Make a list of debts, due dates, secured status, and practical consequences of nonpayment.
  • Protect housing and essential utilities first.
  • Contact top-priority creditors and ask for written hardship agreements.
  • Document every call and keep copies of any written offers.
  • Reassess monthly and adjust as income or relief programs change.

Disclaimer: This article is educational and general in nature and does not substitute for personalized legal, tax, or financial advice. For actions tied to legal obligations (child support, taxes) consult an attorney or tax professional. If you need tailored help, contact a certified financial counselor.

Sources and further reading

In my practice over 15 years advising clients through income shocks, the single most effective actions are quick triage, early creditor contact, and a short-term budget focused on shelter and income preservation. Acting fast usually widens your options and reduces long-term cost.