Can't Pay All Your High Priority Debts?

By Ian Pelham

Although everyone has slightly different priorities most people will want to pay debts required to maintain essential shelter and transportation before worrying about other debts.

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."

Not a good idea at all. Virtually every strategy to keep your home and your car will mean you have to resume repayments again in the future. If you can't make the payments just now, get in touch with your creditor and see if they will accept partial payments in the meantime.

If you absolutely cannot make the payments, it is by far and away the best decision to put the money aside to be used to pay the cost of moving home or to buy a second hand car for cash.

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.

A really bad thing to do, for example, would be to re-mortgage your home and replace your low interest mortgage with a higher interest mortgage just to give you a few months breathing space.

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.

Continuing to pay a debt on property that you will lose in the long term anyway is expensive. You do not want to "throw good money after bad."

Feelings of moral obligation to particular creditors.

When you are analyzing your priorities you might feel that some creditors deserve repayment more than others. You might like some creditors whilst really loathing 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 related issue comes up in small communities where there may only be one store or one doctor or one pharmacist with whom you can do business. You may not want to lose your ability to obtain services from that particular creditor and you may feel you have no choice other than to pay that debt first. This may be true, but only in limited situations.

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.

Similarly, before assuming that you need to use a particular creditor, look around. There may be others in or near your community who are available in a pinch.

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.