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Saturday, December 20, 2008
Prioritizing Debt
If you are having serious debt problems, you are probably having trouble keeping all of your debts up to date. You can only reduce some expenses, and available income can only be stretched so far.
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.
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.
It is easy to be intimidated by the creditor who screams the loudest for their money but they are not necessarily the most important creditor to pay. Many times creditors who scream the most for their money do so because they have no other 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.
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 physical property that a creditor has the right to seize should you default on your payments to them. Usually collateral takes the form of your home (mortgage) and your car when you take out a car loan.
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.
The idea that debts with collateral are the most critical may seem very simple. Unfortunately, it is difficult to keep this simple concept in mind when you are getting hassled by debt collectors trying to force you to pay your lowest priority debts.
It is extremely important to remember this concept as you make decisions about your financial future.
If you are having serious debt problems, you are probably having trouble keeping all of your debts up to date. You can only reduce some expenses, and available income can only be stretched so far.
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.
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.
It is easy to be intimidated by the creditor who screams the loudest for their money but they are not necessarily the most important creditor to pay. Many times creditors who scream the most for their money do so because they have no other 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.
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 physical property that a creditor has the right to seize should you default on your payments to them. Usually collateral takes the form of your home (mortgage) and your car when you take out a car loan.
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.
The idea that debts with collateral are the most critical may seem very simple. Unfortunately, it is difficult to keep this simple concept in mind when you are getting hassled by debt collectors trying to force you to pay your lowest priority debts.
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.
posted by Credit Counseling at
3:35 PM
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