Can't Pay All Your High Priority Debts?

By Ian Pelham

Taking into account individual differences, the vast majority of people would prefer to pay the debts required to maintain a roof over their heads and transport needs before seeing to any others.

For some people in serious financial difficulty they might find that their salary is not enough to service both their mortgage and their car finance.

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."

Not a good idea at all. Virtually every strategy to keep your home and your car will mean you have to resume repayments again in the future. If you can't make the payments just now, get in touch with your creditor and see if they will accept partial payments in the meantime.

If you just can't, put the money to one side and don't use it. It's best used at a later date as a lump sum payment to make up for missed repayments, or buying a cheaper second hand car for cash or to cover the costs of moving house.

Although difficult, really do try to avoid making poor choices. It is hard to face the fact that you may lose your home or your car, but the consequences of poor choices can sometimes be far worse.

A really bad thing to do, for example, would be to re-mortgage your home and replace your low interest mortgage with a higher interest mortgage just to give you a few months breathing space.

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.

Perhaps you can no longer afford to live in the home you are currently in, or maybe you need to sell the car you have now and replace it with a much cheaper one. At this point there are things you can do to make the changes in your life more bearable.

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.

These feelings should rarely be a factor in deciding which debts to pay first. Giving up the family home to pay off a creditor for whom you have good feelings is too big 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 similar situation arises in small towns or villages where there might be only one or two doctors or dentists servicing the community. You might not want to lose the access you have to these people and so you may feel obligated to pay their debts first. This may be a relevant concern but only in limited cases.

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.

The vast majority of people experience financial difficulty at some point in their lives. It really is nothing to be embarrassed about. Ask for help if you need to from those creditors who you have a good relationship with, and promise to do all you can to pay them back quickly as soon as you get back on your feet.

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.