Bills – we all have them and we all should be paying them, but I’m not naïve enough to believe that everyone is. I believe that how people manage, or mismanage, their money tells you a lot about who they are as people.
Do you have everything automated so it comes out of your bank account each month, or are you struggling to make sure your bills are paid each month? Of course, those are extremes and there are many shades of gray in between.
I was reading an article on Yahoo Finance recently and it was discussing what bill people pay first and what it may reveal about our priorities.
So, what bill do most people pay first each month?
Drumroll please…the winner is the car payment.
When comparing credit card payments, mortgage payments and car payments, the latter of the three comes out as the clear winner. According to the Yahoo Finance article, the 30 day delinquency rates are as follows:
- .88 percent for auto loans
- 1.82 percent for credit card payments
- 1.91 percent for mortgage payments
Just to give you a little context, those numbers have improved from 2009 when they were 1.34%, 2.82% and 3.83% respectively. Having the historical numbers does show that delinquency is going down which is good, but I find it very interesting that people consider their car payment to be their most important bill.
There may be many reasons why you may be struggling with car payments from not making enough of an income to a high interest rate loan. If it’s the latter, you may benefit from refinancing that loan. You can refinance through LightStream, for example (or many other loan needs for that matter), for as low as 1.99 percent when you sign-up for AutoPay. Click here to check out the rate you qualify for through LightStream.
Is it “Bad” to Have Your Car Payment Be the First Bill You Pay Each Month?
I’m not going to discuss the wisdom behind having a car payment or even buying a new car vs. a used car as that has been done to death and the answer really depends on the specific situation of the individual making the decision. Personally speaking, we’ve had car payments in the past and are going to do everything we can to avoid having one again in the future. I believe that there can be instances where it might make sense to have a car payment, like if you can get a great rate and make more money elsewhere, but personally I don’t believe we want a car payment again as it’s just a drag on the budget.
What is behind the urge to make car payments first, before other obligations, each month? According to the article it shows the “freedom” that we view having a car gives us. Many people love their cars and view it as a necessity and for many it is. After all, how can you get to work if you don’t have a car? Public transportation is great, but many cities do not offer it at an adequate level and biking to work may also not be a viable option for everyone, thus leaving a car as the mode many need to get to work.
With all that in mind, it can be easy on one level to see why so many people make their car payment be the first bill they cover each month. On one level, I think what bill you pay first, especially between mortgage and car can be a bit of a chicken and the egg situation, but on many other levels there is some skewed thinking.
What Should Your Priority Be?
The problem I see with making a car payment the first bill you pay is that it’s not a necessity on many levels. Yes, you may need a car to get to work and I cede that point, but if given the choice between my car and my home I’ll let you guess as to what I’m going to choose every time – my mortgage payment as I view it as a necessity for my growing family, not to mention a part of being financially stable.
Once the mortgage, or rent, is covered along with other necessities then I believe a car payment should be dealt with. Of course, my priorities may be different than what yours may be, but unless you plan on living in your car then I’d think this would fit many.
The thing to remember, is that both a car payment and mortgage are considered secured debt, going back to the fact that either can be taken from you if you’re delinquent. I’m not certain what the delinquency time frame is for car payments, but I know that for mortgages you’re generally looking at 60 to 90 days depending on where you live.
At the end of the day I think it’s important to see what value you’re deriving from the payments you make and more importantly breaking the cycle of a payment mentality. That really goes back to why we no longer want car payments in our home. We want our money working for us and not obligated to going to different “things” each month. Instead, we want our money going to areas that will bring us value like our home, investing for retirement and growing our business.
Your values may be different from ours but at the end of the day, your values, and not a monthly payment mindset should be at the heart of your personal financial strategy. Having a values-based strategy will help keep you focused on wealth building as opposed to pure consumption.
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What is the first bill you pay first each month? In what order would you make your mortgage, car and credit card payments?
Photo courtesy of: Nanny Snowflake