You've run into more debt than you can pay. Phone and doorbell buzz every little while with unpaid bills and collectors. You decide to perform major surgery on your debts. Now, who do you pay and who do you leave out? It's not that easy, having pressure from all or most creditors. Here are some useful tips for establishing priorities.
The First Evaluation
Judge the debts according to whether they are secured or unsecured. This means whether you risk losing property used as collateral or not, if you don't pay. Examples of this are the car loan, secured with your car and the mortgage, secured with your home.
So, There Are Priorities
Family needs are first. Food, essential clothing and unavoidable medical bills are top of the list. Next come your housing bills. Rent or mortgage must be kept up. If you own your home, real estate taxes and insurance are a must, unless they are taken care of within the mortgage. Condo fees or mobile home lot payments are essential.
Next come utility services. Pay the minimum required to maintain the service. Having no light or gas is a real hassle. Well, you've been camping haven't you? If you need to keep your car, pay loan or lease installments as a next priority. However, this may go up a couple of steps if you need your car to keep your job. Car insurance will have to be considered too.
Child Support Debts
These are next, even though one might think they should be first on the list. Following these debts, income tax is a hot issue. Even if you can't afford to pay all the taxes that are not deductible by your employer, you must file your federal income tax all the same. In fact, if you have lost income, you will also have to pay less tax, this is a great truth.
Low Priority
Debts secured with household goods are low priority. This kind of debt should be treated as an unsecured debt. Should a creditor threaten to sue you if you don't pay up, do not move this debt up the priority scale. Most suits are never carried out.
Court judgements will inevitably make you give these debts a higher priority, since the creditor can use public force to seize some of your property.
Things That Should Never Make You Flinch
Collectors' efforts for getting their cash should not make you budge even if they do stand all day at your front door. Threatens to ruin your credit record should not affect the priority of a debt, either.
Credit Cards
These are a separate matter. They can wait until you have paid all other essential debts. When you have freed some cash from your income, next thing is a loan to consolidate your credit card debt.
By taking action and sticking to your initial plan, you begin to lose fear of your collectors. This is capital because it gives you the trust to start an upward soar in your economy. You begin to look at things in a different way and you will even be surprised at how you got yourself into that situation, if it is so simple to have sound finances.
