Which Debts Must You Repay?

Some debts are more important than others. If you are havingtrouble paying your bills, take the time to prioritize your debts. Makea list of essential and nonessential debts -- and always pay theessential debts first. Read on to learn which debts are essential andwhich aren't.

Essential debts

An essential debt is one which you should put at or near thetop of your list for payment. If you let an essential debt slide, youcould face serious, even life-threatening, consequences.

• Rent or mortgage. Unless you know you are going to move and have a place to live, make paying your rent a top priority. House payments are a little different. If you've lost your job and it looks long-term, your first thought should probably be to sell the place, rent a moderately-priced place and use what's left over to pay your other essential bills. If you decide to stay put, payments on a home equity line of credit or second mortgage are also essential because you can lose your house if you don't pay.
• Utility bills. Being without gas, electricity, heating, water or a telephone is dangerous.
• Child support. Not paying can land you in jail unless you convince the judge that you really couldn't pay.
• Car payments. If you need your car to keep your job, make the payments. If you don't, consider selling it to avoid repossession.
• Other secured loans. Secured debts are linked to specific items of property. If you don't repay the debt, most states let the creditor take the property without first suing you and getting a court judgment.

  If you don't care whether the property is taken or are confident that the creditor doesn't really want it, don't worry about missing a payment or two. If the property is something you cannot live without, however, you'll need to keep that debt current.

• Unpaid taxes. If the IRS is about to take your paycheck, bank account, house or other property, you'll want to negotiate to set up a repayment plan immediately.

Nonessential debts

A nonessential debt is one with no immediate or devastatingeffects if you fail to pay. Paying these debts is a desirable goal, butnot a top priority.

• Credit and charge cards. If you don't pay your credit card bill, the worst that will happen before the creditor sues you is that you will lose your credit privileges.
• Department store and gasoline charges. As with credit and charge cards, if you fail to pay these bills, you'll probably lose your credit privileges and, if the debt is large enough, you may be sued.
• Loans from friends and relatives. You may feel a moral obligation to pay, but these creditors -- who probably seem the least like creditors of anyone -- should be the most understanding with you.
• Newspaper and magazine subscriptions. These debts are never essential.
• Legal and accounting bills. These debts are rarely essential.
• Other unsecured loans. An unsecured loan is not tied to any item of property. The creditor cannot take your property. If you refuse to pay, the creditor can collect from you only by suing you and obtaining a court judgment. These unsecured debts are rarely, if ever, essential to pay first.

Do not, under any circumstances, make payments on nonessential debtswhen you have not paid essential ones, even if your nonessentialcreditors are breathing down your neck. This may sound obvious, butwhen pressured by bill collectors, many people forget the obvious.

For example, if you pay a few dollars on an old hardware storebill just because its collector is the loudest or most persistent, youmay face eviction or have your heat turned off because you won't haveenough money left to pay for these crucial services.

Nolo.com