How to Prioritize Your Debt

What you read in this article may keep a roof over your head, let you keep your sanity, and make answering the phone 100% easier and stress-free.  I’m talking about fixing debt, or rather, prioritizing debts as a powerful way to kick ‘em in the butt for good.  You know who you are: behind on all of your bills, paying one down just to get threatening calls on another, just barely scraping along.  Getting rid of debt can make one feel like Sisyphus, forever pushing the rock up the hill just to watch it roll down once more.  This prioritization is your ticket out, if done right.

How do you prioritize debt?  Begin with paying the essentials for living first, like eating, the rent or mortgage, and any absolutely necessary utility bills.  The phone comes after electricity and, if cold out, heat.  Next, pay the minimums on all bills as they come in, and try very hard to be paying them on time.  This eliminates any further late charges and bad marks on one’s credit report.

Most people say not to pay off small bills first, but to go after those with the highest interest rates.  This is true, but there are some exceptions.  For one, if some of the debts are very small, like a couple hundred here or there, just kill them.  Really, if you have problems keeping all your bills straight and have some of these little debts, do not let them linger around.  A $100 debt that is forgotten or left unpaid a month here, a month there, can become a huge, sucking black hole.  Luckily, these debts also happen to usually be for stores and such, which carry higher interest rates, anyway.  Next, I say, keep any blemish-free account paid and up to date!  Do not burn all your bridges… it’s worth keeping a good name with at least somebody, even if it is just your gas card or whatever.  Furthermore, if a card company is threatening to sue you or throw you in jail, obviously, pay them first!  I know it sounds harsh, but a lot of advice is for people who have only screwed up a little bit, or have large debts but have not yet become delinquent on everything.  Some people are much, much worse off than even that.

Now why pay off the debts with large interest rates first?  Easy, once your basic needs are met, the largest interest debt is the most expensive kind.  Paying only minimums each month may only be paying the interest, and you will never see the debt go down.  Meanwhile, your bank account will continue to lose.  Credit cards and store cards tend to be the most expensive and the least necessary for living, so getting rid of those is a good deal.  Pay your student loans off last, because these are the lowest interest rate loans with the most flexibility for repaying.  Stafford loans issued by the federal government fall under this category.