COVID + Credit: How to prioritise when money is tight
While you should do your best to pay your bills on time every month, that isn't always possible. If you find yourself in a tight spot, you may have to make hard financial decisions about where to channel your available resources. Thinking through which bills to prioritise can make a huge difference to your long-term financial recovery.
The decisions you make will be specific to your financial situation but use the following tips as a guideline.
1. Prioritise housing, food and medical needs
Your health and safety are the top priority in any tough financial situation. So, it's important to ensure you have a roof over your head by paying your rent or mortgage, except in the case of mortgage repayment holidays that have been agreed with your bank.
If you haven’t needed to take a mortgage repayment holiday, it’s a good idea to know what the options are if your circumstances change. In March, The New Zealand Government, in collaboration with retail banks and the Reserve Bank, announced a six month principle and interest payment holiday for mortgage holders for those impacted by COVID-19.
Making sure you budget for food, medication or medical treatment is essential. It pays to keep your prescriptions up-to-date and avoid skipping essential medical appointments, as getting back on your feet will only be more difficult if you're unwell.
2. Secure essential utilities and reassess transport options for essential journeys
Securing necessities like water, heating and electricity is a must for health and safety, as is at least one landline or mobile. If you’re struggling to meet the payments, get in touch with the relevant providers sooner rather than later as most will be prepared to work with you during this period of uncertainty. It’s also critical to notify your electricity provider if you’re dependent on medical equipment in your home.
As most of us adjust to working from home, there will be essential journeys (supermarket and medical) as well as travel to and from work for essential workers. If you depend on a car for work, it's important you meet any payments that are due including insurance and registration.
If you’re able to use an alternative mode of transport that’s cheaper than running a car, it’s worth investigating how much you could save, and where that money would be better spent.
3. Try to keep up with personal loans, credit card payments and tax
If finances are really tight, it's usually better to pay loans that are not due, only after your day-to-day expenses are covered. Personal loans and credit cards typically have high interest rates, so letting them go unpaid means more interest in the long term. If you’re struggling, contact each lender as early as possible and talk through the options. Remember it’s in everyone’s best interests to have a plan in place that’s affordable.
If you’re permanently employed, it’s unlikely you’ll have to worry about tax as it will be paid by your employer at source. If you’re self-employed or a contractor, check out the information on the Inland Revenue's dedicated COVID-19 page.
4. Catching up with the bills you missed
Ultimately, if you're faced with a significant financial setback, there may be times when you need to delay your monthly payments and debts. But it's extremely important to remember that while you may delay payment, you cannot stop payments altogether. You will still be responsible for paying back what you owe, potentially with additional interest or late fees.
For more information and advice, visit the official government COVID-19 financial support and assistance site.
You may also be interested in:
Paying your bills - how to catch up if you have fallen behind
Your questions answered - the impact of COVID-19 on your credit file