If you have a lot of debt, solving this problem can be a very long and difficult path. Unless you won the lottery, there is never enough money to pay off all your debts as you please, and if you run out of money, you can only pay for the essential costs, a miracle. If you can’t do anything, it’s time to prioritize. Prioritizing your debt can help you pay off as soon as possible, and you can pay for the security you need to get back. Best of all, you can prioritize your debt for yourself. In doing so, you can avoid having to afford expensive credit counseling or a debt management program.
Prioritizing your debt
1 Start now No matter what your financial situation is, while having debt or regular accounts, you should prioritize it. Don’t wait until you lose your home or enter into a financial crisis, because at that stage you probably need more drastic solutions. Prioritizing your debt, along with a budget, can help you solve remaining issues and solve problems.
- 2 Collect all your paperwork. In order to prioritize, you need to know at least the interest rate (and sometimes other costs) balances, minimum monthly payments of every debt you have. You may also review other terms and conditions of your loans and credit cards. A calculator is needed to make your numbers.
- Make sure you consider the fees that may affect your priorities. For example, some credit cards have annual fees that you can avoid paying if you pay and cancel the card. Some loans have prepaid penalties, which can quickly make paying these debts less profitable than just considering interest rates.
- If the interest rate of a particular account is subject to change, as in the case of credit cards, which have introductory rates, you should consider them. Your priorities may change as the rate changes.
- When prioritizing interest rates, use “The effective interest rate”, the rate that takes into account any tax deduction. This usually applies to mortgages or student loans. Since the interest payments on these loans are deductible, the cost of that loan is slightly less than the interest rate. Calculate the effective rate by multiplying the interest rate by 1 minus your percentage income tax. For example, you are in a 30% tax category and you have a bond with a 10% rate, the effective interest rate is 7.0% (10 * (1-0.30)).
- 3 Determine which strategy you need. If you live comfortably and surely, your goal should be to prioritize your debt to pay them as soon as possible. If you hardly survive, prioritize them to ensure that you cover all your needs while trying to reduce potential problems. Each situation requires different strategies to prioritize your debt.
- Strategy 1: Pay your debts fast. Debt can be paid quickly with the “snowball” technique.
- Place your debt in one or one of the highest with the lowest rate.
- Make the minimum payment for each debt, except one, the debt that has the highest rate. Make sure you currently keep the other accounts.
- Pay as much as you can in the first debt. In general, the easiest way to pay off all your debts is to pay off the debt that has the highest rate (usually credit cards or personal loans). So, you want to pay as much of the debt as possible every month.
- Focus on debt with the highest interest, once you pay the debt with the highest rate, continue to the next debt until you have paid everything.
- for example:
- You pay $ 15,000.00 on your Acme Bank credit card with 13% interest, and you must pay $ 70.00 each month as a minimum payment. You must pay $ 2500.00 on your Foosbank credit card with 10% interest, and you must pay at least $ 200.00 per month. You can pay an additional $ 100.00 on one of your credit cards. Pay $ 200.00 each month on the Acme card, and pay the minimum on the other credit card. Once you’ve paid everything on the Acme card, pay the $ 200 on the Foosbank card. Now you pay $ 400.00 a month on the balance of the card, so you’ll eventually pay in 5 months. This is the “snowball” effect.
- Strategy 2: Prioritize to stay alive. If you are struggling to cover the essentials, take care of the most important needs, such as food.
- Hold a roof over your head. If you own a home, the mortgage is the most important priority. A lender in the United States usually starts a negative if you don’t pay three months, although it can vary. Even if you only fall for one or two months, you will struggle to keep up with your payments, which can cause problems with your mortgage. If you rent, they can ask you to leave if you have not paid, and then you will have to find another place to live with a stain in your history.
- Pay your basic services. Lighting, water and other services will give you time so you can pay, but if you get too late, they will cut off services that can make your life complicated and reconnected can be very expensive. . If you cannot fully pay your bills, call the company and see if they can make a payment plan. They can usually do this.
- Keep your car. If you need a car to go to work or get a job, it’s important to keep current payments. Financial companies can seize your car and many times without notice. Make sure you also pay your insurance because that’s what the law says and if you don’t, the borrower will add your own insurance, which usually costs more, as it will only protect the investor’s interests.
- Do your best to save money for gasoline.
- Consider vehicle sharing
- Did you consider the idea of life without a car?
- Pay for child support. Failure to pay child support can take you to jail.
- Pay the tax. Failure to pay property taxes may result in the exclusion of the property. In extreme cases, income tax does not pay, especially when a criminal activity has taken place in that place, can send you into jail.
- Pay student loans. Government supports student loans, and if you don’t pay, they can take actions that other creditors can’t
- Pay your lower priority debt. Credit cards, loans secured by household items, personal loans and store cards are not a high priority. Pay at least all these cards if you can, but if you have to choose between a credit card or your mortgage, choose the mortgage. “Call the credit card company and tell them you need a delay.” If you call them and let them know they are in trouble, most are willing to help you with a payment plan, by temporarily reducing the minimum payment until you can pay again. If you do not pay attention, they will be angry and you will not be willing to help.
- Pay your medical bills. Medical bills show more lenient than other loans even if they are on your credit card being viewed differently compared to other payments.
- Update your accounts as soon as possible. Once you fix it, update all your accounts, focus on those left behind. Once everything is at the moment, begin to prioritize debt payments.
- Strategy 3: Improve your credit record. Begin paying off credit accounts (such as credit cards) with the highest balances relative to the credit limit. The “utilization rate” the percentage of your available credit that you use is an important factor in determining your credit rating, and the borrowers use it to determine your ability to pay off debt in the future.
- How to recover your credit
- Another very useful technique is to save between $ 500 and $ 1000 in an emergency fund (to pay for the transfer when it doesn’t work, don’t eat outside just because you don’t want to cook) before you get the snowball. technique begins. Once you have it, do not use the credit card and start the snowball. In this way, you do not run the risk of needing money and returning to debt with unexpected expenses.
- Your priorities may change according to the circumstances. For example, if you make a court decision against an old debt, it should be a priority, since the creditor can take care of your salary and can do negative action. Having said that, choose which debt you can pay, don’t let the collection actions affect your decision. Collecting agencies will try any kind of tactic to pay you quickly, even if you can’t. Don’t fall for their tricks, and stick to your plan. Keep your family with food and timely home payments before paying a credit card.
- Prioritizing your accounts can help you get debt, but to have financial freedom, your spending must remain under control. Carefully analyze your habits and cut unnecessary expenses. Do not stay more than you can afford, and do not have the consequences of more debt. If your income can’t support your expenses, try to get a better job or a second job. Make changes to your lifestyle, and make sure you’re not back in debt.
- If you cannot pay the minimum payment of your debt, talk to the creditor and try to reach an agreement. Mortgage lenders can help you accommodate payments if they see that you are really trying to pay your debt and if the situation is temporary. Even credit card companies can temporarily lower your minimum payment.
- Sometimes it makes sense to first pay small loans, even if they do not have a high interest rate. If you can pay the debt quickly, you will have less debt to worry about and paying a debt motivates you to pay all your debts. You can settle your debt if you have 4 or 5 small loans, instead of waiting to pay a high interest rate.
- Sometimes it makes sense to invest extra money instead of using it to pay off debt. For example, if you have a 7% interest rate loan, but you can get 15% by investing your money, it’s better to invest it. This strategy is called “leverage” can be dangerous because the return on most investments is subject to change. Even worse, many investors may refuse their value. So you might lose money. In any case, make sure you pay the minimum payment for all your debts before investing.
- Always consider the consequences of delaying your payments and adjust your priorities around special circumstances. For example, if you owe it to a loan holder and you will probably break your legs if you don’t pay, debt is a priority.
- Individual financial situations and obligations vary considerably. This article should only be considered a guideline and is not intended to replace professional legal or financial advice. You must prioritize your debt according to your situation.
- The credit card companies are often the most annoying (that is, they are the ones who constantly call you) in terms of cost. This does not mean that they are of high priority, even if they say they are. Remember, there are laws that protect you from excessive collection measures (harassment, threatening language, etc.).