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 youare going to move and have a place to live, make paying your rent a toppriority. House payments are a little different. If you've lost yourjob and it looks long-term, your first thought should probably be tosell the place, rent a moderately-priced place and use what's left overto pay your other essential bills. If you decide to stay put, paymentson a home equity line of credit or second mortgage are also essentialbecause 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 youin jail unless you convince the judge that you really couldn't pay.
- Car payments. If you need your car tokeep your job, make the payments. If you don't, consider selling it toavoid repossession.
- Other secured loans. Secured debts arelinked to specific items of property. If you don't repay the debt, moststates let the creditor take the property without first suing you andgetting a court judgment.
If you don't care whether the property is taken or areconfident that the creditor doesn't really want it, don't worry aboutmissing a payment or two. If the property is something you cannot livewithout, however, you'll need to keep that debt current. Unpaid taxes. If the IRS is about totake your paycheck, bank account, house or other property, you'll wantto negotiate to set up a repayment plan immediately.Nonessential debtsA 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'tpay your credit card bill, the worst that will happen before thecreditor 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'llprobably lose your credit privileges and, if the debt is large enough,you may be sued. Loans from friends and relatives. Youmay feel a moral obligation to pay, but these creditors -- who probablyseem the least like creditors of anyone -- should be the mostunderstanding with you. Newspaper and magazine subscriptions.These debts are never essential. Legal and accounting bills. Thesedebts are rarely essential. Other unsecured loans. An unsecuredloan is not tied to any item of property. The creditor cannot take yourproperty. If you refuse to pay, the creditor can collect from you onlyby suing you and obtaining a court judgment. These unsecured debts arerarely, 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
Source: Money & Work
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