Prioritizing Debt
It is quite likely that if you are experiencing debt problems then you are finding it increasingly difficult to keep up with your monthly debt repayments. Your income can only go so far and only some of your expenses can be reduced.
This leaves you with no choice but to delay or not pay some debts. Once you determine that you can't afford to pay all of your debts as they come due, you will have to make some hard choices as to which bills you should pay first. Your home or apartment, your utilities, your car, and even your household possessions may be at risk.
Following the rules in this chapter may make the difference between keeping or losing important property.
Do Not Take On More Debt To Pay Off Old Debt.
A short-term fix can lead to long-term problems.
Instead of delaying or eliminating certain debt repayments, you may be tempted to take on more debt to repay old debts. This is generally a bad idea. When you should and should not refinance, consolidate or take out new loans is discussed in a later article.
Your main strategy in dealing with too much debt is deciding which debts to pay first, which you can refuse to pay, and which you can put off until later.
It is easy to be intimidated by the creditor who screams the loudest for their money but they are not necessarily the most important creditor to pay. Many times creditors who scream the most for their money do so because they have no other way to get their money.
Of more concern are creditors who not only threaten, but actually can take quick action against your home, utility service, your car, or other important assets.
Pay off creditors who can take the quickest action to hurt you, not those who yell the loudest and call the most often.
The money you do have should be used for the most important things for your family such as food, clothing, a roof over their heads and utilities.
It would be great if there was a recommended 'list' dictating the order in which your debts should be paid, but unfortunately there isn't. Your situation will be different to someone else's. The guidelines in this article should be used as reference points only as you make your decisions.
Debts with collateral are top priorities.
The most important concept to bear in mind throughout this process is one of 'collateral'. This concept should guide you when deciding which debts to pay and which to default on.
Collateral is defined as a physical object stipulated as being used as an object of value which will be recovered in the case where non-payment of a loan takes place, usually your home (mortgage) or car (car finance).
A creditor may also have collateral in your household goods, business property, bank account, or even wages. Collateral can take many forms. When a creditor has taken collateral for your loan, it has a "lien" on your property.
Determine which of your debts are 'secured' and which are 'unsecured'.
In nearly every case you should pay secured debts first. 'Secured creditors' are creditors who have collateral. They know that if you don't pay them back they can take the collateral from you and auction it off to try and recover their money.
Creditors without collateral are often referred to as "unsecured." It is usually hard for unsecured creditors to collect what they are owed unless you pay voluntarily.
The idea that debts with collateral are the most critical may seem very simple. Unfortunately, it is difficult to keep this simple concept in mind when you are getting hassled by debt collectors trying to force you to pay your lowest priority debts.
It is extremely important to remember this concept as you make decisions about your financial future.
It is quite likely that if you are experiencing debt problems then you are finding it increasingly difficult to keep up with your monthly debt repayments. Your income can only go so far and only some of your expenses can be reduced.
This leaves you with no choice but to delay or not pay some debts. Once you determine that you can't afford to pay all of your debts as they come due, you will have to make some hard choices as to which bills you should pay first. Your home or apartment, your utilities, your car, and even your household possessions may be at risk.
Following the rules in this chapter may make the difference between keeping or losing important property.
Do Not Take On More Debt To Pay Off Old Debt.
A short-term fix can lead to long-term problems.
Instead of delaying or eliminating certain debt repayments, you may be tempted to take on more debt to repay old debts. This is generally a bad idea. When you should and should not refinance, consolidate or take out new loans is discussed in a later article.
Your main strategy in dealing with too much debt is deciding which debts to pay first, which you can refuse to pay, and which you can put off until later.
It is easy to be intimidated by the creditor who screams the loudest for their money but they are not necessarily the most important creditor to pay. Many times creditors who scream the most for their money do so because they have no other way to get their money.
Of more concern are creditors who not only threaten, but actually can take quick action against your home, utility service, your car, or other important assets.
Pay off creditors who can take the quickest action to hurt you, not those who yell the loudest and call the most often.
The money you do have should be used for the most important things for your family such as food, clothing, a roof over their heads and utilities.
It would be great if there was a recommended 'list' dictating the order in which your debts should be paid, but unfortunately there isn't. Your situation will be different to someone else's. The guidelines in this article should be used as reference points only as you make your decisions.
Debts with collateral are top priorities.
The most important concept to bear in mind throughout this process is one of 'collateral'. This concept should guide you when deciding which debts to pay and which to default on.
Collateral is defined as a physical object stipulated as being used as an object of value which will be recovered in the case where non-payment of a loan takes place, usually your home (mortgage) or car (car finance).
A creditor may also have collateral in your household goods, business property, bank account, or even wages. Collateral can take many forms. When a creditor has taken collateral for your loan, it has a "lien" on your property.
Determine which of your debts are 'secured' and which are 'unsecured'.
In nearly every case you should pay secured debts first. 'Secured creditors' are creditors who have collateral. They know that if you don't pay them back they can take the collateral from you and auction it off to try and recover their money.
Creditors without collateral are often referred to as "unsecured." It is usually hard for unsecured creditors to collect what they are owed unless you pay voluntarily.
The idea that debts with collateral are the most critical may seem very simple. Unfortunately, it is difficult to keep this simple concept in mind when you are getting hassled by debt collectors trying to force you to pay your lowest priority debts.
It is extremely important to remember this concept as you make decisions about your financial future.
About the Author:
Ian is someone who has come through a very difficult time financially. He used credit debt consolidation to ease his situation markedly. Without good debt consolidation advice he would have certainly gone bankrupt.
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