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.
You therefore have little choice but to either delay, or not pay at all, some debt repayments as they come due. In this situation you will be forced to think very hard about which payments you really should pay first. You risk several things such as your home, gas, electricity, car and even your household possessions.
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.
Many people opt to take on new debt to pay off old debt instead of delaying or eliminating certain debt payments. Very rarely is this a good idea. The option to refinance or take on new loans and when, if ever, you should do so is discussed in a later article.
You really do need to figure out which debts can be paid at a later date, which you can just not pay, and which ones you absolutely must pay first.
The most important creditor to pay is not necessarily the creditor who screams the loudest or the most often. Creditors who yell the loudest often do so only because they have no better way to get their money.
More worrying are those creditors who make some noise but then very quickly take action to recover their money in the form of legal action to take away your home, car, gas, electricity, etc.
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.
Unfortunately there is no magic list of the order in which these debts should be paid. Everyone's situation will be different. The rules in this article should be used as a guide as you make these critical decisions.
Debts with collateral are top priorities.
There is one thing you should bear in mind when deciding which debts to default on and which ones to make a priority to pay, and that is the idea of 'collateral'.
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.
This concept of paying your debts that are secured first is a simple one, but when you have debt collectors constantly hounding you to pay the lowest priority debts first it can be very difficult to keep it in mind.
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.
You therefore have little choice but to either delay, or not pay at all, some debt repayments as they come due. In this situation you will be forced to think very hard about which payments you really should pay first. You risk several things such as your home, gas, electricity, car and even your household possessions.
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.
Many people opt to take on new debt to pay off old debt instead of delaying or eliminating certain debt payments. Very rarely is this a good idea. The option to refinance or take on new loans and when, if ever, you should do so is discussed in a later article.
You really do need to figure out which debts can be paid at a later date, which you can just not pay, and which ones you absolutely must pay first.
The most important creditor to pay is not necessarily the creditor who screams the loudest or the most often. Creditors who yell the loudest often do so only because they have no better way to get their money.
More worrying are those creditors who make some noise but then very quickly take action to recover their money in the form of legal action to take away your home, car, gas, electricity, etc.
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.
Unfortunately there is no magic list of the order in which these debts should be paid. Everyone's situation will be different. The rules in this article should be used as a guide as you make these critical decisions.
Debts with collateral are top priorities.
There is one thing you should bear in mind when deciding which debts to default on and which ones to make a priority to pay, and that is the idea of 'collateral'.
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.
This concept of paying your debts that are secured first is a simple one, but when you have debt collectors constantly hounding you to pay the lowest priority debts first it can be very difficult to keep it in mind.
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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