You hear tons of experts advising you to pay off high interest debt before any other expenses. And in some cases this makes perfect sense. For example, it’s always a smart move to deal with credit cards with double-digit interest rates before handling the plastic with single-digit interest. But in other cases, you may want to pay off debts with lower interest rates in the interest of appeasing creditors who have more recourse against you when or if you get behind on your payments.
According to NerdWallet financial expert, Tim Chen, “When you have several different types of debts and your income isn't quite keeping up with your total expenses, it can be tough to figure which debts to pay first. Ignoring high priority debts and focusing on less important ones may ultimately leave you in a worse situation than you were before. It's often helpful for many people to have a table that lists their debts in order of highest priority to lowest.”
So what are “high priority” debts on your list of what’s important to pay first? Here are some quick tips to help you re-prioritize your personal expenses:
Start With Secured Debts
Whether you’re dealing with a car note or mortgage payments, these secured debts—debts associated with assets that can be repossessed or otherwise seized—should be your first order of business when paying off debts. While a car or house may carry with it a lower interest loan, they are also interests that keep a roof over your head and allow you to keep moving, working or looking for work. As such, they’re important to hold on to and should remain a priority. Keep in mind that when times get really tough and paying for these priority purchases becomes impossible, filing for Chapter 13 bankruptcy makes it possible to reorganize your debts, restructure payments and force a creditor to accept delinquent payments.
Next, Deal With Debts That Can Result in Serious Penalties
While wage garnishment is against the law in North Carolina and some other states, skipping out on debts for which wages can be garnished include IRS, student loans, and child support payments could also result in serious penalties, with the latter including prison time.
Third, Serve the Services That Require Continued Use
Let’s face it, you need lights, water and the ability to see a doctor when faced with injury or illness. As a result, you should put a priority on paying for services that require continuing uses. Short-changing your doctor will often mean you’ll need to find another. Late payments on utilities will often result in financial penalties and an eventual shut-off of services. Fortunately, in these tough economic times, many doctors and utilities will work with you on payment plans to recoup the difference over time. If you fall behind, try working with either to keep the relationship—and services—going for the long haul.
(4) Last, if you can, Undertake Your Unsecured Debts
After clearing the hurdles on secured and continued service debts, as well as debts that come with serious penalties, you can then turn to repaying unsecured debts—debts with no assets backing them—such as credit cards or consumer loans. While these creditors may harass you in the meantime, they’re also unlikely to repossess property and more likely to negotiate debt forgiveness. If you find yourself in a situation where you can't cover your credit card debt after paying for the three other debt types listed above, consider a Chapter 7 bankruptcy, which allows you to get rid of your unsecured debt, providing a safe period to save for higher priority expenses such as your home, car and child support.
So, if you are having trouble dealing with debt altogether, it may be time to join the millions of Americans who are already bankruptcy bound. The bankruptcy experts at the Law Offices of John T. Orcutt offer a totally FREE debt consultation and now, more than ever, it may be time to take them up on their offer. Just call toll free to 1-888-234-4181, or find them online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.