Debts - Which To Pay Off First

By Ian Pelham

Prioritizing Debt

Chances are, if you're in trouble with debts you are finding it hard keeping on top of the payments for all your debts. Only some expenses can be reduced and your income can be stretched only so far.

In this situation you have no option but to delay, or not pay some of your monthly debt repayments as become due. There are hard choices to make about which bills you should pay first. This is especially difficult when you risk things such as your home, utilities, car and even your personal 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.

It is tempting to take on more debt to pay off old debts instead of delaying or getting rid of certain debt repayments. Usually this is the wrong choice. Deciding when you should and shouldn't take on new loans 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 creditor who makes the most noise most often is not necessarily the creditor you should pay back the first. Many times these creditors make as much noise as possible to intimidate you since they have no other way to reclaim their money.

Of more concern are creditors who not only threaten, but actually can take quick action against your home, utility service, your car, or other important assets.

Pay off creditors who can take the quickest action to hurt you, not those who yell the loudest and call the most often.

Your available resources should be used for the things most needed for your family - usually food, clothing, home and gas & electricity.

It would be great if there was a recommended 'list' dictating the order in which your debts should be paid, but unfortunately there isn't. Your situation will be different to someone else's. The guidelines in this article should be used as reference points only as you make your 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'.

It is very nearly always the best policy to pay off your secured debts first. Creditors with collateral are secure in the knowledge that they can take the collateral from you and sell it to get their money back. That is why they are called 'secured creditors'.

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.