What If You 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.

In some cases, you may find that your financial situation is so bad that your cannot even maintain required payments to those high priority debts. Your income, for example, may not be enough to pay the mortgage and the car loan.

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 are unsuccessful, save the money. You can use it later to make a lump-sum down payment to get caught up or to cover the costs of moving to a new residence or buying a new car.

Another pitfall to avoid it making desperate choices. Although it is hard to accept that you will lose a home or a car or other valuable property, the alternatives can sometimes be worse.

An example would be to refinance your low interest rate mortgage with a high interest rate mortgage in order to take the pressure off in the short term (the next few months), although ultimately it will quite likely prove to be hopeless

You have a better chance of working out a solution with the existing lender than you do of avoiding foreclosure by taking out a loan with an aggressive finance company that makes high-rate loans.

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.

You may be living in a home you can't afford or you may need to substitute a cheaper auto to fit a new lifestyle. Once that point is reached, you can do things which make the transition easier.

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 are not easy choices and you really do need to base these on your own unique circumstances and future prospects. After making your decision, it is the best thing to cease payments on that debt and focus instead on servicing other urgent debts.

Continuing to pay a debt on property that you will lose in the long term anyway is expensive. You do not want to "throw good money after bad."

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.

Everyone has financial problems at one time or another. It is nothing to be embarrassed about. Ask for help from creditors with whom you have a good relationship if you need it, and explain that you will make every effort to pay when 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.