Sometimes when you are carrying a lot of debt it is difficult to decide which debts to give priority. There is the mortgage, a car loan, credit cards and the like. Everyone is chasing you for payment. While you may not be able to meet all your set repayments, it can be difficult to decide which debt should be paid first.
Secured vs Unsecured Debts
Generally speaking your secured debts such as your home loan and your car loan should get priority over unsecured debts. If you fail to make the set payments on these debts, the lender could repossess the asset. This risk is not present with unsecured debts. However if you fail to pay unsecured debts, the lender may damage your credit history and even push you into bankruptcy.
Most expensive debts get priority
In choosing which debts to reduce first you should take into account the amount and cost of the debts. Clearly the debt that costs you the most every month should be reduced first. However that is not so say that debts which cost less can be allowed to fall into arrears. All debts should be maintained in order if at all possible. As soon as you stop paying someone, your credit report will be affected.
Protect your credit history
We believe that every borrower should be very aware of their credit history and of the need to maintain it in order. If you feel that you may start falling behind you need to speak to the credit providers. While it is true that most expensive debts should be paid down first, all debts should be maintained in order. Borrowers whose credit history reflects missed payments or defaults will not be able to qualify for some debt consolidation solutions. To insure that you maintain your options open when t comes to debt consolidation, keeping a clean credit history is vital.
Negotiate a payment plan
If you are finding that there is simply no money left to pay some of your debts – contact the lender. The should meet you half way if you demonstrate a desire and commitment to keep paying. Some lenders will agree to offer you reduced payments for a few months until you can catch up with your debts. Do not simply stop paying, as this will make future potential negotiations with your lender much more difficult.
Reduce debts before saving
If you are not in trouble financially, then your priorities should lie with debt repayment before investment. This is especially true in the current economic climate when most forms of investment yield low returns. Our advise may be different in buoyant economic times. However given the uncertainty in most world economies, it is safe to concentrate on debt reduction before looking at saving and wealth creation