How To Prioritize Your Balances for Debt Relief

The first step in order to provide oneself adequate debt relief is to organize your credit and debt situation. List your debts and organize them by the total balances, interest rates charged, and monthly payments. By cataloging your outstanding debt, managing it becomes much easier. Once the debt is organized, categorize each debt according to the importance of staying current with them.

Most Important – housing, utilities, insurance, vehicle loans, child support, federal student loans (assuming they cannot be deferred or put in forbearance), taxes, and medical bills with a provider you will definitely need to use in the future. These should be considered the most important debts to pay because defaulting will result in foreclosure, repossession, imprisonment (in the case of child support or tax evasion), or some other immediate and significantly damaging action. In the case of the medical bills with an essential provider, by defaulting your payments you may be refused their services.

Somewhat Important – loans with trivial collateral (stereos, televisions, etc), furniture store accounts, private student loans. In the event that a consumer is overextended to the point where defaulting is inevitable, these debts should be prioritized moderately. Private student loans cannot be discharged in a bankruptcy, but they do not have the same strong legal remedies afforded to federal student loans.

Mildly Important – credit card, pay day cash advances, personal loans with high interest default rates. The reason why these are mildly important is because they are unsecured and not afforded any of the legal advantages of other debts, notably student loans. However, the high interest rates charged in the event of non-payment make these important to pay because late fees and interest charges can accrue rapidly and dramatically, thus increasing the balance owed.

Least Important – medical bills with a provider you will not need to use in the foreseeable future, deficiency balances from repossessions. These receive the lowest priority because they are both unsecured and the creditor normally cannot increase the balance by charging excessive interest or late fees.