How to Prioritize Your Debts

When your income falls short of your monthly expenses, there is very little you can do other than prioritize your debts. You need to pay those that are “more important” now – and catch up with the rest later. Long term, you need a strategy of increasing income and/or decreasing expenses to ensure you’re not always operating in the “red” of course, but for now, you need to prioritize and pay back as much as you can with the money you have.

Everyone has a unique situation. So it is not possible to list debts in order of importance in such a way that it will apply to everyone. Experts will tell you to direct limited funds to the expenses that are most important for you and your family. These include food, medical expenses and clothing. Typically, if you’re just running a little short on money once in awhile, you already have more than enough clothes to get by. When clothing is listed as a priority, it doesn’t mean to go out and get yourself a new wardrobe with the funds you have! It’s meant to say you need to have clothing to cover yourself, but if you have to do with less clothing than what you would like to have, that’s acceptable.

Once your basic needs are met, you can prioritize the rest of your expenses:

Housing Expenses

High priority expenses are anything involving your home. Your mortgage or rent, real estate taxes, home owners or renters insurance, condo fees, mobile home lot payments, etc. Failure to keep up with your home expenses can cause you to lose your home. If you have unresolvable financial problems that make it impossible to keep up with the payments, you should look at moving to a less expensive place to live. If you decide to make this move, you could save your home payment that would normally pay your rent or mortgage and use it as your moving fund. Depending on the situation, you might consider a Chapter 13 bankruptcy to reorganize your debts, restructure mortgage payments and force the mortgage lender to accept delinquent payments.

Utility Expenses

Many utilities will accept a partial payment temporarily, and keep your services turned on. Check with your electricity provider, source of heat (if it’s winter), water, and telephone provider to see if they have a policy for partial payments or if they may be able to let you skip a month without major penalties. Paying your home’s mortgage or rent doesn’t make sense if you have no utilities.

Car Expenses

Do you need your car to get to and from work? If so, it’s listed high on your list of priorities for making your loan payments or lease payment. Don’t forget you have to keep up with your car insurance as well in order to drive your car legally.

Child Support Payments

If you have children who do not live with you, you must do everything you can to pay your child support. In fact, skipping out on child support results in serious penalties including prison.

Here is a list of other debts, listed according to priority (for most people – remember to make decisions based on your personal situation or seek professional advice when necessary:)

• Income Tax Debts
• Debts that have court judgments against you
• Student loans
• Credit card debts & other loans without collateral
• Loans that used household goods as collateral
• Co-signed debts