If your bills are stacking up and what’s “going out” is threatening to outpace what’s “coming in”, you’re going to have to figure out how to prioritize your debts. As good as it might feel to do, paying as much as you can on everything without a plan could actually hurt you. In other words, unless you strategically rank your debts and treat them accordingly, you could actually wind up in worse shape—even if you’re already struggling to pay something on each of your obligations each month.
Here’s what you need to consider.
Don’t Deny Necessities
Everybody needs food, shelter and clean running water. Therefore, your housing expenses, utilities and groceries should always come first. Further, debts such as mortgages and car loans are secured debts, which means failure to pay will result in the loss of those items. On the other hand, these debts also typically have lower interest rates than credit cards and personal loans, so their balances accrue at a slower rate.
Legal Obligations are Obligatory
If you’re making child support payments, or have a tax liability you’re servicing, those debts should fall next in line. Missed child support payments can have significant consequences, including jail time in extreme circumstances. A former spouse entitled to those payments can also petition the courts to have your wages garnished if you demonstrate a pattern of failing to pay. Tax bills can have similar effects. Fortunately, payment plans can usually be arranged to help you continue to meet those obligations.
Unsecured Debt Comes Next
Monthly payments toward credit card debt, medical bills, store charge cards and the like should be made only after you’ve satisfied all of the above each month. Interestingly, this type of debt typically makes up the bulk of the financial obligations incurred by most American households because it often carries the highest interest rate.
In fact, if left to its own devices, the bulk of credit card debt can easily be comprised of interest and fees. This, in part, is why companies like Freedom Debt Relief can usually negotiate with your creditors to reduce what you owe.
Deferred Loans Can be Deferred
Student loans, while considered bankruptcy-proof obligations, can be deferred—if you ask. Yes, the interest will continue to accrue, but student loan lenders will usually work with you in this regard to give you some time to get your finances back on track.
Additionally, the interest rate is almost always more reasonable than that of credit cards, so it won’t grow as rapidly when left unpaid for a time. Just make sure you contact the lender and get a deferment agreement in writing. Don’t just stop paying and assume you’ll get a deferment.
Seek Professional Help
If all of this seems overwhelming and you’re having trouble making sense of it, contacting a professional debt organization is a good idea. They can help you strategize the best payment methods and determine whether you should consider a debt consolidation loan. Other alternatives include credit counseling, debt management and in extreme cases, bankruptcy. The good news is you always have options, no matter how dire the situation might seem when you’re trying to figure out how to prioritize your debts.