When you have too much debt, deciding which one to pay off first can be a little tricky. However, not knowing how to prioritize can push you further into debt quicksand or even land you in jail. Generally, you should pay off the debt for which you stand to lose something and then prioritize the rest in terms of urgency and size.
If you’re still confused, here are some of the things that should appear on your debt cross-out list:
Home Mortgage or Rent
If you don’t own your house, this should be one of the top priorities, especially if you have no other place to go to.
Secured loans
If you owe a company some money for which you had to put up a collateral, pay this off first. If you default, you risk losing whatever property it is you used to guarantee your debt repayment. If you don’t mind losing it, then move on to the next on your list. The only caveat is that defaulting on your payment can affect your credit rating.
Credit cards
Pay off your largest credit card debt first and make minimum payments on the smaller ones. Interest and penalties do add up, making it harder for you to pay them later.
Unpaid taxes
If you owe the IRS, you bet they’ll come knocking at your door soon. You’ll lose a lot if you don’t pay them. If you can’t afford the payment, by all means, negotiate. They’re quite willing to talk as long as you make the initiative.
Car payments
Pay only if you cannot live or work without a car. Otherwise, think about selling the unit and commuting to work.
[image from kinuk]
1 comment so far ↓
From the book “Rich Dad Poor Dad”, I’ve read that while simultaneously paying different debts, the particular debt that one should pay off first is the smallest debt, then go prioritize the next smallest debt, and just follow the trend onwards. When the number of small debts are slowly being paid off. there will be sense of fulfillmment.
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