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In Hard Times, What Bills Should I Pay First?

Don't chase a good credit score at any cost

Q. The stock market turmoil earlier this month suggests the hard times aren't going away anytime soon. What should be your priority in paying bills if you've lost your job and are struggling financially?

A. You still have to pay all your bills. But when it becomes a difficult juggling act, try to pay the full amount in the following order, suggests Gail Cunningham of the National Foundation for Credit Counseling, the largest network of accredited credit counselors.

See also: What you can do when the market slumps.

1. Living expenses — groceries, mortgage or rent, utilities, medicine, insurance premiums, gasoline for driving you've got to do, for instance. That way, you'll have food on the table and a roof over your head.

2. Other loans, such as car or home equity.

3. Credit cards. You have to pay at least the minimum amount. If you possibly can, pay more to avoid high carry-over interest charges.

"Skipping any type of payment will be reflected on your credit report and credit score, but it's a mistake to chase that score at any cost," says Cunningham. For instance, if paying down a card balance means your house goes dark because of an unpaid electric bill, you've got to rethink.

"When you're financially struggling, it's especially important — if only for peace of mind — to keep your home life as financially stable as possible," notes Cunningham, whose group's member agencies establish repayment programs for about 4 million Americans each year.

Obviously, you also want to cut expenses and increase income. Cut back on nights out. Ask about better repayment options on your mortgage or other loans. Drop premium cable channels, or cancel cable service altogether — but ask the provider to waive any early termination fee. "If you historically have been a good customer, they may be willing to work with you," Cunningham says.

At the same time, she recommends looking for some type of part-time work — giving piano lessons, say. This will not only generate income but show any concerned creditor that you're making a good faith effort to pay your bills.

If you've already fallen behind in payments and tried unsuccessfully to negotiate with lenders and service providers, you're entitled to write a brief explanation (100 words or less) that will be attached to the reports that the big credit bureaus maintain about you. This letter should explain your circumstances and steps you've taken to try to pay in full. Include your name, address and Social Security number and mail the letter to all three bureaus:


P.O. Box 2104

Allen, TX 75013

Equifax Information Services

P.O. Box 740241

Atlanta, GA 30374

TransUnion Consumer Solutions

P.O. Box 2000

Chester, PA 19022-2000

You may also like: Improve your credit score. >>

Sid Kirchheimer writes about consumer and health issues.