Taking into account individual differences, the vast majority of people would prefer to pay the debts required to maintain a roof over their heads and transport needs before seeing to any others.
In some cases, you may find that your financial situation is so bad that your cannot even maintain required payments to those high priority debts. Your income, for example, may not be enough to pay the mortgage and the car loan.
One serious mistake that some people make in this situation is to pay smaller, low-priority debts if they cannot keep up with their high priority debts -- "If I can't pay my mortgage, at least I will keep up with my credit cards."
This is a bad idea. Almost any long-term plan for saving your home and your car will require that you start making payments again at some point. In the short term, if you don't have enough to make full payments, you can try to negotiate with the creditor to accept partial payments.
If you just can't, put the money to one side and don't use it. It's best used at a later date as a lump sum payment to make up for missed repayments, or buying a cheaper second hand car for cash or to cover the costs of moving house.
Another pitfall to avoid it making desperate choices. Although it is hard to accept that you will lose a home or a car or other valuable property, the alternatives can sometimes be worse.
For example, refinancing a low-rate mortgage with a high-rate mortgage may buy you a few months, but in the long term the situation is likely to be hopeless.
There is almost always a better chance of negotiating a solution of sorts with your existing lender than there is by taking on finance from a finance company with high interest loans who may have an overly enthusiastic repossession department.
There are many strategies for dealing with debt problems discussed throughout this course. Occasionally, though it is best to step back and accept the inevitable change which money problems sometimes require.
You may be living in a home you can't afford or you may need to substitute a cheaper auto to fit a new lifestyle. Once that point is reached, you can do things which make the transition easier.
You may need to sell your home at a reasonable retail price so as to avoid a low price at a foreclosure auction, or making an agreement with your lender that they can take over ownership of the property without making you pay any shortfall.
These are not easy choices and you really do need to base these on your own unique circumstances and future prospects. After making your decision, it is the best thing to cease payments on that debt and focus instead on servicing other urgent debts.
You absolutely do not want to pay debt on a property that you realise you cannot hold onto at all in the long run. You do not want to throw your hard earned money into a lost cause.
Feelings of moral obligation to particular creditors.
In deciding your priorities, you may feel that some creditors are more entitled to repayment that others. You may have good feelings toward some creditors, but bad feelings toward others.
You should never let these feelings become a factor in your decision making. Having your family thrown out of their home with nowhere to go just to pay your local dentist and accountants bill is far too much of a sacrifice.
If a creditor is sympathetic or has done you favors in the past, they are more likely to be patient as you work out your financial problems.
A similar situation arises in small towns or villages where there might be only one or two doctors or dentists servicing the community. You might not want to lose the access you have to these people and so you may feel obligated to pay their debts first. This may be a relevant concern but only in limited cases.
You should not assume that a business or a doctor will cut you off from future service right away if you don't pay. Explain the situation and ask for patience.
Also, you may find there are other creditors nearby who you can use as alternatives should the need arise.
The vast majority of people experience financial difficulty at some point in their lives. It really is nothing to be embarrassed about. Ask for help if you need to from those creditors who you have a good relationship with, and promise to do all you can to pay them back quickly as soon as you get back on your feet.
In some cases, you may find that your financial situation is so bad that your cannot even maintain required payments to those high priority debts. Your income, for example, may not be enough to pay the mortgage and the car loan.
One serious mistake that some people make in this situation is to pay smaller, low-priority debts if they cannot keep up with their high priority debts -- "If I can't pay my mortgage, at least I will keep up with my credit cards."
This is a bad idea. Almost any long-term plan for saving your home and your car will require that you start making payments again at some point. In the short term, if you don't have enough to make full payments, you can try to negotiate with the creditor to accept partial payments.
If you just can't, put the money to one side and don't use it. It's best used at a later date as a lump sum payment to make up for missed repayments, or buying a cheaper second hand car for cash or to cover the costs of moving house.
Another pitfall to avoid it making desperate choices. Although it is hard to accept that you will lose a home or a car or other valuable property, the alternatives can sometimes be worse.
For example, refinancing a low-rate mortgage with a high-rate mortgage may buy you a few months, but in the long term the situation is likely to be hopeless.
There is almost always a better chance of negotiating a solution of sorts with your existing lender than there is by taking on finance from a finance company with high interest loans who may have an overly enthusiastic repossession department.
There are many strategies for dealing with debt problems discussed throughout this course. Occasionally, though it is best to step back and accept the inevitable change which money problems sometimes require.
You may be living in a home you can't afford or you may need to substitute a cheaper auto to fit a new lifestyle. Once that point is reached, you can do things which make the transition easier.
You may need to sell your home at a reasonable retail price so as to avoid a low price at a foreclosure auction, or making an agreement with your lender that they can take over ownership of the property without making you pay any shortfall.
These are not easy choices and you really do need to base these on your own unique circumstances and future prospects. After making your decision, it is the best thing to cease payments on that debt and focus instead on servicing other urgent debts.
You absolutely do not want to pay debt on a property that you realise you cannot hold onto at all in the long run. You do not want to throw your hard earned money into a lost cause.
Feelings of moral obligation to particular creditors.
In deciding your priorities, you may feel that some creditors are more entitled to repayment that others. You may have good feelings toward some creditors, but bad feelings toward others.
You should never let these feelings become a factor in your decision making. Having your family thrown out of their home with nowhere to go just to pay your local dentist and accountants bill is far too much of a sacrifice.
If a creditor is sympathetic or has done you favors in the past, they are more likely to be patient as you work out your financial problems.
A similar situation arises in small towns or villages where there might be only one or two doctors or dentists servicing the community. You might not want to lose the access you have to these people and so you may feel obligated to pay their debts first. This may be a relevant concern but only in limited cases.
You should not assume that a business or a doctor will cut you off from future service right away if you don't pay. Explain the situation and ask for patience.
Also, you may find there are other creditors nearby who you can use as alternatives should the need arise.
The vast majority of people experience financial difficulty at some point in their lives. It really is nothing to be embarrassed about. Ask for help if you need to from those creditors who you have a good relationship with, and promise to do all you can to pay them back quickly as soon as you get back on your feet.
About the Author:
Ian Pelham is a marketer who has come through a very difficult time financially. He used debt consolidation loans to restructure his finances. Using a debt consolidation loan was one of the best things he did to rid himself of his bad debt.
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