How To Prioritize Your Debts
Being in debt is not always a bad thing, in fact a high percentage of people, earning all different types of salaries will find themselves in debt and more than 92% of homeowners have a mortgage debt above their heads. Most of this debt is very manageable but some people will find themselves in debt holes which they cannot get out of and try foolishly to borrow their way to debt freedom which is not a very sensible course of action to take.
Regardless of what kind of debt you are in, manageable or otherwise, here is how you should be prioritizing your debts.
High Interest First
Any debts which you have that are charging you high rates of interest should be focussed on primarily. Whilst interest is how the creditors make their money, for you it is a payment for simply borrowing and money that you will never get back again. If you have bank loans or mortgage payments then the likelihood is that these have reasonable rates of interest, credit cards and loan companies will charge far higher interest and you should ensure that you are trying to cut these down as soon as possible.
Pay the Threat
If there is a possibility that you may have something taken away if you don’t keep up the payments then you should be looking at getting it paid off as soon as possible. Having a car repossessed for none payment is something that nobody should have to go through so when it comes to focusing on which debts are the most important, pay for the things which you want to keep in your life.
If you are having trouble keeping up payments on your debts then you should always be trying to pay backwards. Keeping one debt healthy whilst defaulting on another makes no sense at all and will not protect your overall rating. The best course of action is to contact a creditor with whom you have a good history and asking for a payment holiday, this can freeze your payments for a month or two whilst you focus on those which have defaulted. You’ll be surprised at how flexible creditors can be and it is worth remembering that they want to clear the debt just as quickly as you do.
Speak With Family and Friends
If you have borrowed money from family and friends then unfortunately, they should go to the bottom of the priority list, they won’t charge interest, nor will they send the heavies around to repossess your stuff. This sounds a little like you are taking advantage of them but it is basic realism. What you should be striving to do however is having an open discussion with whoever loaned you the money to make it clear what your situation is and why you are focussing on other debts. It would also go a long way if you helped them out in other ways until you are able to pay them back.