Let me start off by saying: I hope you never find yourself in this difficult situation!
Life gets really stressful when money is tight. People get sick, layoffs happen, and the household income drops due to unforeseen circumstances. When you find yourself short on cash, which do you let be late: The mortgage or credit cards?
According to TransUnion, one of the major credit reporting agencies, more Americans choose to pay their credit card bills to keep from being late than keep a mortgage current.
Is this wise?
Let’s walk through a few scenarios to expose the pros and cons of each option:
Paying the credit cards but not the mortgage?
Benefits: Staying current on your credit card will reduce the number of incoming calls from creditors, avoiding stress.
Disadvantages: Catching up on skipped house payments is not as simple as credit cards. Lenders will send a check back that does not include the entire amount of missed payments and late fees.
As each month passes it becomes harder and harder to get caught up and in only a few months you could find yourself in a death spiral (or what I call a debt-spiral).
Oh yeah, and your credit is shot.
Paying the house while being late on credit cards?
Benefits: Your house is home base. It’s where your kids sleep and you can regroup to fight another day. Simply knowing you have a place to rest your head is a huge relief.
As mentioned earlier, it’s also much easier to stay current on a mortgage than to get out of a debt-spiral. And finally, mortgage payments are weighed heaver in measuring credit worthiness than other debts.
Disadvantages: Not paying a credit card will trigger an unbelievable amount of collection calls. Not only that, a late payment (or no payment) may trigger a clause to allow interest rates to jump to an unconscionable level.
And, of course, your credit report fills up with red boxes indicating late/no pays. Not good.
You have rights, even if you don’t pay
Just because you didn’t pay your bills this month doesn’t mean you give up your rights.
The Fair Debt Collection Practices Act does allow creditors to contact you between the hours of 8am and 9pm but it also restricts them from “causing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously with intent to annoy, abuse, or harass any person at the called number” (§ 805).
In other words: even if you owe them a million dollars, using harassment to collect a debt is a violation of Federal Law.
Use this to your advantage: Keep a notepad by your phone and record dates, times, and name of every creditor that calls. If they break the rules, let them know.
If they continue this bad behavior then exercise your rights; Contact a lawyer and sue their misbehaving b-hinds!
But most importantly: Communicate
No matter what the scenario, remember this: COMMUNICATE WITH YOUR CREDITORS. Don’t wait for them to sick the attorneys on you to start explaining what happened.
Tell them you are willing to make the payments; you just aren’t able to pay right now. Being late on bills sucks. Getting sued because it’s the only way creditors will get paid is a nightmare.
It will take more than one phone call to make any progress and you’ll probably have to ask to be escalated to a supervisor. Remain diligent – this is your life we are talking about here!
Recovering from missed payments
Once you get back on your feet you can work out a deal with the creditors. They just want their money so let’s work out a deal where we honor our agreement and they get their money.
Ask your mortgage lender to modify or “rehab” the account. It won’t happen in the first call but they do want to work with you. They may ask you make one and a half payments for a period of time or roll the payments to the end of the term. Keep communicating and work out a deal you both agree with.
Most credit card companies don’t begin legal procedures until at least 6 months of non-payment. Credit cards are unsecured debts so it requires a court hearing and a judgment for them to be able to do anything. (Remember this when the threatening letters and phone calls start pouring in).
Prevent this from EVER happening to you
It is possible to be ready for an unexpected job loss or furlough that would keep you from working and paying bills. Many people don’t prepare for these types situations but we know what happened in 2008-2009: Bad things happened to a lot of good people.
Here are three simple suggestions to prevent anyone from falling behind on payments:
- Save some cash in an emergency fund
- Pay cash for cars
- Use a debit card in place of a credit cards
Listen to how we travel and take vacations without credit cards or debt: http://moneyplansos.com/how-to-have-a-great-vacation-without-a-credit-card/
Having a couple thousand in the bank is a HUGE relief and could keep anyone from defaulting on a loan. Avoiding debt by using debit cards instead of credit is easier now than ever. Buying cars, not financing them, will eliminate a huge monthly burden and save you tons of interest.
So, which do you let be late?
What is the correct answer: Pay the mortgage or credit cards first?
The decision is up to you, but let me give you one piece of advice from 1 Timothy 5:8. It says “if anyone does not provide for his own, that is his own household, he has denied the faith and is worse than an unbeliever.”
If God says my first priority is to shelter and feed my family then it’s easy to choose the house over credit cards. My rights as a citizen affords me time to work out arrangements with creditors while I get back on my feet. Communication is the key to buying time when there’s no money.
My wife and I have taken the steps above to prevent something like this from ever happening to us. I hope our wisdom and experience has been transferred to you – and I pray you never find yourself in this type of situation!
Have you ever been late on your bills? What happened and what did you do to get out of it?