Which Debts To Pay Off First
It is quite likely that if you are experiencing debt problems then you are finding it increasingly difficult to keep up with your monthly debt repayments. Your income can only go so far and only some of your expenses can be reduced.
You therefore have little choice but to either delay, or not pay at all, some debt repayments as they come due. In this situation you will be forced to think very hard about which payments you really should pay first. You risk several things such as your home, gas, electricity, car and even your household 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.
Instead of delaying or eliminating certain debt repayments, you may be tempted to take on more debt to repay old debts. This is generally a bad idea. When you should and should not refinance, consolidate or take out new loans is discussed in a later article.
One option for you could very well be to take a look at debt consolidation loans. Although not always the best option, in some cases they give you enough breathing room to make ends meet for your family.
The main thing to do with too much debt is to decide which debts should be paid first, which you can refuse to pay, and which you can delay for a period of time.
The most important creditor to pay is not necessarily the creditor who screams the loudest or the most often. Creditors who yell the loudest often do so only because they have no better way to get their money.
The creditors to be the most concerned about are those who quickly take action against your home, car, utility service or any other vital assets you may have.
Pay off creditors who can take the quickest action to hurt you, not those who yell the loudest and call the most often.
The money you do have should be used for the most important things for your family such as food, clothing, a roof over their heads and utilities.
Since there is no ‘wonder list’ which gives the specific order in which debts should be paid, you should use this article as a general reference guide and make more decisions based on this information and your particular circumstances.
Debt consolidation loans, or any loans for that matter, 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’. Debt consolidation loans could fall into either category.
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.
The notion that ’secured debts’ are the ones most vital to pay is a fairly simple one. The problem arises when you have a constant stream of debt collectors harassing you to pay unsecured debt, often distracting you from keeping the ’secured debt first’ rule in mind.
It is extremely important to remember this concept as you make decisions about your financial future.
