Financial Recovery: How to Prioritise Your Bills

Financial Recovery: How to Prioritise Your Bills

When it comes to managing your monthly expenses, it can be difficult to define how you should settle your costs – especially if you have recently found yourself in financial distress, or suffered an unforeseen emergency expense that you couldn’t have anticipated. 

While it is important to settle all of your expenses, prioritising your payments can help you form a plan of action and allocate your budget to eventually cover all of your accounts without either accruing interest, or going further into financial distress – or worse – legal jeopardy. 

Pay yourself first: prioritise expenses with the highest interest 

The saying ‘pay yourself first’ refers to settling expenses with the highest interest, first. The saying itself means that by paying accounts with the highest interest rate, you’ll prevent yourself from attracting costly interest fees or other charges on accounts that you haven’t been able to pay. 

A worthwhile place to start is by listing all of your monthly expenses and separating your needs from your wants. For example, prioritising payments involving your home or medical care can both give you stability and protection from unforeseen costs. 

For example, a list of payments you should prioritise over other ‘wants’ can include: 

  • Housing 
  • Utilities 
  • Food 
  • Transportation 
  • Insurance 
  • Debt  
  • Medical expenses 

It’s important to note that all service providers or creditors to whom you owe money will one day attempt to recoup their costs if you haven’t settled your accounts with them, and for that reason, you should immediately communicate with your creditors if you aren’t able to pay your accounts as you would normally.  

Usually, a creditor will attempt to assist you by formulating a repayment plan that can help you settle your monthly costs. While this may affect your credit score, it can be a useful method to help you address your finances and balance your budget. 

Additionally, prioritising larger repayments to interest-bearing accounts can help you avoid charges that will only accumulate in time, and will accordingly become more difficult and expensive to repay. 

Use the ‘snowball’ debt reduction method 

The ‘snowball’ reduction method is a great way to identify your outstanding accounts with the highest interest rate and can help you allocate payments to settle your most costly expenses while at the same time servicing other debts you may have. If you’d like to learn more, you can read our full guide here. 

Consider temporarily suspending policies that you don’t need 

While services such as your medical aid or other insurance plans are a necessity to avoid unforeseen expenses, considering which premiums you actively use and consider to be relevant is a good starting point in the event you need to re-allocate your monthly expenses. 

For example, as a younger person, you may be able to temporarily suspend allocations towards your retirement annuity or pension plan to prioritise payments elsewhere. However, should you suffer from a form of illness or have children, you may wish to continue subscribing to your chosen medical aid. 

Suspending policies that you don’t actively need or won’t consider using within the next few months, or at least a year, can afford you some financial leeway to address other gaps in your budget. 

Start using (or cash in) your loyalty rewards 

If you find your finances stretched thin, you can consider supplementing your budget with your loyalty rewards. 

Loyalty programmes are initiatives designed by local retailers to encourage (and reward) you for shopping with them. If you have active loyalty accounts, you may have outstanding benefits which could supplement your budget. 

For example, many retail stores offer cashback rewards – and using your loyalty points to supplement your cash-on-hand can help you afford groceries or other necessities. In some instances, retailers will also allow you to transfer your loyalty points balance to settle an outstanding account in whole or in part. 

To learn more about loyalty programmes, you can read our in-depth guide available here. 

Beware bouncing debit orders 

Many accounts may collect a monthly payment by debit order, which is a convenient way to ensure that you can easily settle your latest repayment. However, should you find your bank account balance insufficient to manage these expenses, your debit order may bounce and may not be collected by the creditor expecting an outstanding payment. 

This can have two risks; firstly, a creditor who hasn’t received an outstanding payment may be within their rights to collect interest on the balance that is due to them; and, secondly, your bank or creditor may elect to charge you a service fee should they be forced to re-debit your account later in the month. 

If you find yourself without a sufficient balance in your account at a certain time of the month, many creditors will be happy to adjust the day on which they next collect an account repayment by debit order to ensure they can make a successful collection.  

By doing so, you can adjust your cash flow to perform on dates whereafter you have either been paid or where you have a sufficient account balance to settle your accounts. Remember, if you find yourself unable to service a monthly expense, it is always wise to speak to your creditor first. 

Download the Financial Readiness Pack 

If you’ve found yourself in financial difficulty, taking a step back and re-evaluating your finances can be a powerful way to form an action plan and address the gaps in your budget. 

The Wonga Financial Readiness Pack can assist you in developing sound strategies to budget, save, manage your debt, and plan and set up investments – all the while learning key financial literacy skills. 

You can download the Financial Readiness Pack and get started here. 

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