Although individual priorities may vary, in the main most people prefer to service the debts that allow them to keep their home and their car before worrying about any of the other debts they may have.
In some cases, you may find that your financial situation is so bad that your cannot even maintain required payments to those high priority debts. Your income, for example, may not be enough to pay the mortgage and the car loan.
There are those people that make a serious mistake when in this situation. They choose to ignore their high priority debts in favor of their low priority debts, thinking something along the lines of, "If I can't pay my car finance, at least I can pay my credit cards."
This is a bad idea. Almost any long-term plan for saving your home and your car will require that you start making payments again at some point. In the short term, if you don't have enough to make full payments, you can try to negotiate with the creditor to accept partial payments.
If you just can't, put the money to one side and don't use it. It's best used at a later date as a lump sum payment to make up for missed repayments, or buying a cheaper second hand car for cash or to cover the costs of moving house.
Although difficult, really do try to avoid making poor choices. It is hard to face the fact that you may lose your home or your car, but the consequences of poor choices can sometimes be far worse.
For example, refinancing a low-rate mortgage with a high-rate mortgage may buy you a few months, but in the long term the situation is likely to be hopeless.
Most times you stand a much better chance of arranging something with your existing lender than you do with a finance company who gives out high interest rate loans, and might very well be more inclined to foreclose.
There are many strategies for dealing with debt problems discussed throughout this course. Occasionally, though it is best to step back and accept the inevitable change which money problems sometimes require.
You may be living in a home you can't afford or you may need to substitute a cheaper auto to fit a new lifestyle. Once that point is reached, you can do things which make the transition easier.
You may need to sell your home at a reasonable retail price so as to avoid a low price at a foreclosure auction, or making an agreement with your lender that they can take over ownership of the property without making you pay any shortfall.
These are not easy choices and you really do need to base these on your own unique circumstances and future prospects. After making your decision, it is the best thing to cease payments on that debt and focus instead on servicing other urgent debts.
Continuing to pay a debt on property that you will lose in the long term anyway is expensive. You do not want to "throw good money after bad."
Feelings of moral obligation to particular creditors.
In deciding your priorities, you may feel that some creditors are more entitled to repayment that others. You may have good feelings toward some creditors, but bad feelings toward others.
These feelings should rarely be a factor in deciding which debts to pay first. Giving up the family home to pay off a creditor for whom you have good feelings is too big a sacrifice.
If a creditor is sympathetic or has done you favors in the past, they are more likely to be patient as you work out your financial problems.
A similar situation arises in small towns or villages where there might be only one or two doctors or dentists servicing the community. You might not want to lose the access you have to these people and so you may feel obligated to pay their debts first. This may be a relevant concern but only in limited cases.
You should not assume that a business or a doctor will cut you off from future service right away if you don't pay. Explain the situation and ask for patience.
Also, you may find there are other creditors nearby who you can use as alternatives should the need arise.
Everyone has financial problems at one time or another. It is nothing to be embarrassed about. Ask for help from creditors with whom you have a good relationship if you need it, and explain that you will make every effort to pay when you get back on your feet. - 15224
In some cases, you may find that your financial situation is so bad that your cannot even maintain required payments to those high priority debts. Your income, for example, may not be enough to pay the mortgage and the car loan.
There are those people that make a serious mistake when in this situation. They choose to ignore their high priority debts in favor of their low priority debts, thinking something along the lines of, "If I can't pay my car finance, at least I can pay my credit cards."
This is a bad idea. Almost any long-term plan for saving your home and your car will require that you start making payments again at some point. In the short term, if you don't have enough to make full payments, you can try to negotiate with the creditor to accept partial payments.
If you just can't, put the money to one side and don't use it. It's best used at a later date as a lump sum payment to make up for missed repayments, or buying a cheaper second hand car for cash or to cover the costs of moving house.
Although difficult, really do try to avoid making poor choices. It is hard to face the fact that you may lose your home or your car, but the consequences of poor choices can sometimes be far worse.
For example, refinancing a low-rate mortgage with a high-rate mortgage may buy you a few months, but in the long term the situation is likely to be hopeless.
Most times you stand a much better chance of arranging something with your existing lender than you do with a finance company who gives out high interest rate loans, and might very well be more inclined to foreclose.
There are many strategies for dealing with debt problems discussed throughout this course. Occasionally, though it is best to step back and accept the inevitable change which money problems sometimes require.
You may be living in a home you can't afford or you may need to substitute a cheaper auto to fit a new lifestyle. Once that point is reached, you can do things which make the transition easier.
You may need to sell your home at a reasonable retail price so as to avoid a low price at a foreclosure auction, or making an agreement with your lender that they can take over ownership of the property without making you pay any shortfall.
These are not easy choices and you really do need to base these on your own unique circumstances and future prospects. After making your decision, it is the best thing to cease payments on that debt and focus instead on servicing other urgent debts.
Continuing to pay a debt on property that you will lose in the long term anyway is expensive. You do not want to "throw good money after bad."
Feelings of moral obligation to particular creditors.
In deciding your priorities, you may feel that some creditors are more entitled to repayment that others. You may have good feelings toward some creditors, but bad feelings toward others.
These feelings should rarely be a factor in deciding which debts to pay first. Giving up the family home to pay off a creditor for whom you have good feelings is too big a sacrifice.
If a creditor is sympathetic or has done you favors in the past, they are more likely to be patient as you work out your financial problems.
A similar situation arises in small towns or villages where there might be only one or two doctors or dentists servicing the community. You might not want to lose the access you have to these people and so you may feel obligated to pay their debts first. This may be a relevant concern but only in limited cases.
You should not assume that a business or a doctor will cut you off from future service right away if you don't pay. Explain the situation and ask for patience.
Also, you may find there are other creditors nearby who you can use as alternatives should the need arise.
Everyone has financial problems at one time or another. It is nothing to be embarrassed about. Ask for help from creditors with whom you have a good relationship if you need it, and explain that you will make every effort to pay when you get back on your feet. - 15224
About the Author:
Ian Pelham is a marketer who has come through a very difficult time financially. He used debt consolidation loans to restructure his finances. Using a debt consolidation loan was one of the best things he did to rid himself of his bad debt.
