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.
One serious mistake that some people make in this situation is to pay smaller, low-priority debts if they cannot keep up with their high priority debts -- "If I can't pay my mortgage, at least I will keep up with 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 absolutely cannot make the payments, it is by far and away the best decision to put the money aside to be used to pay the cost of moving home or to buy a second hand car for cash.
Another pitfall to avoid it making desperate choices. Although it is hard to accept that you will lose a home or a car or other valuable property, the alternatives can sometimes be worse.
An example would be to refinance your low interest rate mortgage with a high interest rate mortgage in order to take the pressure off in the short term (the next few months), although ultimately it will quite likely prove to be hopeless
There is almost always a better chance of negotiating a solution of sorts with your existing lender than there is by taking on finance from a finance company with high interest loans who may have an overly enthusiastic repossession department.
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 choices are difficult and have to be made based on your individual evaluation of your long-term prospects. Once the choice is made, however, it is a good idea to stop making payments on that debt in favor of other pressing items.
You absolutely do not want to pay debt on a property that you realise you cannot hold onto at all in the long run. You do not want to throw your hard earned money into a lost cause.
Feelings of moral obligation to particular creditors.
When you are analyzing your priorities you might feel that some creditors deserve repayment more than others. You might like some creditors whilst really loathing others.
You should never let these feelings become a factor in your decision making. Having your family thrown out of their home with nowhere to go just to pay your local dentist and accountants bill is far too much of 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 related issue comes up in small communities where there may only be one store or one doctor or one pharmacist with whom you can do business. You may not want to lose your ability to obtain services from that particular creditor and you may feel you have no choice other than to pay that debt first. This may be true, but only in limited situations.
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. - 16492
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.
One serious mistake that some people make in this situation is to pay smaller, low-priority debts if they cannot keep up with their high priority debts -- "If I can't pay my mortgage, at least I will keep up with 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 absolutely cannot make the payments, it is by far and away the best decision to put the money aside to be used to pay the cost of moving home or to buy a second hand car for cash.
Another pitfall to avoid it making desperate choices. Although it is hard to accept that you will lose a home or a car or other valuable property, the alternatives can sometimes be worse.
An example would be to refinance your low interest rate mortgage with a high interest rate mortgage in order to take the pressure off in the short term (the next few months), although ultimately it will quite likely prove to be hopeless
There is almost always a better chance of negotiating a solution of sorts with your existing lender than there is by taking on finance from a finance company with high interest loans who may have an overly enthusiastic repossession department.
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 choices are difficult and have to be made based on your individual evaluation of your long-term prospects. Once the choice is made, however, it is a good idea to stop making payments on that debt in favor of other pressing items.
You absolutely do not want to pay debt on a property that you realise you cannot hold onto at all in the long run. You do not want to throw your hard earned money into a lost cause.
Feelings of moral obligation to particular creditors.
When you are analyzing your priorities you might feel that some creditors deserve repayment more than others. You might like some creditors whilst really loathing others.
You should never let these feelings become a factor in your decision making. Having your family thrown out of their home with nowhere to go just to pay your local dentist and accountants bill is far too much of 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 related issue comes up in small communities where there may only be one store or one doctor or one pharmacist with whom you can do business. You may not want to lose your ability to obtain services from that particular creditor and you may feel you have no choice other than to pay that debt first. This may be true, but only in limited situations.
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. - 16492
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.
