Marcia's Blog

What you should pay first when cash runs out

I have a question for you. If you didn’t have enough money to pay all of your bills, which bill would you pay first: your mortgage, your car note or your credit card?

If your answer is your mortgage, I commend you. But if your answer is your car note or even your credit cards, you may be making a major mistake.

Our loan counselors at HomeFree-USA have found that many people tend to pay their car notes and their credit card bills before they pay their mortgages if they are experiencing a cash crunch. I also came across an article that describes how the credit bureau TransUnion found the same thing to be true. People were more likely to be late paying their mortgage than their car notes and credit card bills.

While you may have every intention of catching up on your delinquent mortgage payments, the truth of the matter is that many people end up going through foreclosure and having no place to live because they prioritized non-essential spending over their homes.
When you start to experience money challenges, here’s what you need to do:

Determine whether the problem is a one-time setback or a long-term problem. If it’s a long-term problem, you need to readjust your budget and possibly look for ways to increase your income.  You may also be able to sell your car and get a less expensive one. That is a better option than losing your home to foreclosure.

Seek help. Don’t wait until you are in dire straits to figure out a plan for paying your mortgage. If you are in trouble, visit a non-profit HUD-approved homeownership organization for help with dealing with your lender, or contact your lender to discuss your situation with them directly. Also contact your other creditors to see if they will allow you to skip a payment or temporarily lower it. For example, many lenders will allow you to delay one car payment if you’re having a rough time.

Pay for the needs before the wants. When you don’t have enough money, you have to prioritize. Always pay a mortgage or car note before you pay a credit card bill (If you can’t pay both). Your mortgage and car notes are examples of secured debt, which means the lenders can take your home or your car away from you if you don’t make your payments. A credit card is unsecured debt, so while the credit card issuer can close your card, there’s no asset that you stand to lose.

Your home is likely your biggest asset. Make paying your mortgage a top priority so you can stay on the road to wealth.