How to Prioritize Your Debt

When it comes to matters of debt, people are often concerned with how to pay this money back. They are often not as aware of what processes that they should take when it comes to prioritising debt for the long term. Many people want to ensure that they are taking positive steps in being free of the debt cycle. But, this comes with knowledge on how to manage your debts and how to prioritise them accordingly.

There are many different ‘theories’ if you will, on how to prioritise and organise your debt. Of course, this a matter of personal opinion so it may be best to try different approaches to paying off your loans to ensure that you find a method that works best for you.

Your Finances: Which is the Most Important?

When it comes to debts, you may not know which is the most important. After all, all debts are important and should be paid back within the proffered time frame. For many people, they feel that they are struggling with their debts and cannot afford to pay them back in one foul swoop. With this in mind, it’s certainly time to consider your options.

It’s all about being a savvy consumer. If you are paying the right debts back at the correct time, you are leaving yourself with more disposable cash and you will pay off your debts in no time at all.

It may seem as though there is a quick fix, but anyone who is in the throes of debt will tell you that this is a marathon, not a sprint. There isn’t a one-size-fits-all solution to debt and there is no magic way to clear it quickly. But, there are savvy steps that you can take.

First stop: let’s see how you are managing your finances.

Keeping Up With Payments: Yes or No?

In simple terms, you need to assess if you are keeping up to date with your loan agreements. Ensure that you do not default on payments and make sure that you are paying more than the minimum. For some, this is an easy feat. For others, not so much. Debt can be all-consuming for those who are struggling to keep up with the payments. When this happens, it’s certainly wise to consider the options. For many, they look at ways to consolidate credit card debt. Others start looking at ways that they can reduce their interest payments. In the main, there are many ways that you can review your credit options and make sure that you are in a great place to be paying your debts off.

As a general rule of thumb you should contact your creditors immediately to make them aware of the situation and what the current states of your finances are.

Priority and Non Priority Debts: What Gives?

For those that are struggling with their loans and credit agreements, it may be wise to organise your priority debts. When you feel that you are in the midst of your own personal financial crisis, all loans can seem like priority ones. Of course, this is simply not true. There are some loans that obviously take a higher priority than others.

It’s all about figuring out which ones need to be paid with immediate effect and which ones can sit on the backburner.


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Priority Debts

Priority debts, contrary to popular belief, are not necessarily the largest debts that you owe. What is more, a priority debt isn’t even one that has the highest rate of interest. In short, a priority debt is the kind of debt that has a detrimental impact if you don’t pay if off.

There are a large number of factors that constitute a priority debt:

Losing your home – this could be because you haven’t kept up with a mortgage agreement or you have a secured loan that is tied into your property
Having your utilities cut off
Being forced to declare bankruptcy
Being summoned to court as you have neglected the payments
If any of the above factors apply to you, you need to consider which debts is your priority.

There are some bills that have to be paid first above all else:

  • Mortgage
  • Loans that are secured against your home
  • Council tax
  • Gas
  • Electric
  • Water
  • Child maintenance
  • TV license
  • HP agreements
  • Court fines

These are all debts that need to be paid as a matter of urgency. For many, if they are feeling the pinch the best way to ensure that you do not land yourself in financial disarray is to contact the provider and make them aware of your financial problems. They may set up a payment plan or freeze interest. It is in a company’s interest to recover costs; therefore, they have to take steps to help you manage your debt. Of course, some companies such as private companies can be less than forgiving. If this is the case for you, seek advice from a debt charity or an independent financial service.

Your Non Priority Debts: They Still Need to be Paid!

When it comes to non-priority debts, this doesn’t mean that they should be ignored. On the contrary, this kind of debt still needs to be paid within an agreed timeframe but there may be a degree of flexibility when these can be paid.

Things like credit cards, store cards and overdrafts can all be managed in a more substantial way. So, if you have non-priority debts, the best way to tackle these head on is to seek out a consolidation service. This will ensure that you are solely paying one rate of interest. What’s more, you will have a clear end date in sight. For many, this can be a positive way to pay off debts without incurring any penalties.

Paying Off Your Non Priority Debts: Most Expensive Always Has to Come First

With non-priority debts, seek out which debts cost you the most in terms of interest. This means that you can target the debt more effectively and ensure that you do not face any further financial implications as a result. With this, you will have to ensure that you are paying off your debts within the proffered time frame and you must not default on payments. Once you have tackled one debt, you can move onto the next. Pay more off each debt every time with the surplus cash that you have left. This will ensure that you get out of debt more quickly.


About Author
Jack is Tech blogger. He contributes to the Finance, Insurance, Money Investment and Saving Tips section on InsuranceMost.