Essential or Nonessential Debt?

(Page 2 of 2 of Which Debts Must You Repay? )

Some debts straddle the line between essential and nonessential. Not paying won't cause severe consequences in your personal life, but could prove painful nonetheless. In deciding whether or not to pay these debts, consider your relationship with the creditor and whether the creditor has initiated collection efforts.

Some of these debts include:

  • Auto insurance. In some states, you can lose your driver's license if you drive without insurance. In California, you cannot register your car without proof of insurance.
  • Medical insurance or bills. If you let your health insurance lapse, you may have difficulty getting new insurance. Especially if you are currently under a physician's care, you'll want to continue making payments.
  • 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. But penalties and interest add up quickly.
  • Car payments for a car that is essential for your job. The inconvenience of not having a car may justify making these payments.
  • Court judgments. Once a creditor has a judgment, the creditor can collect it by taking a portion of your wages or other property. If a particular judgment creditor is about to grab some of your pay, the fact that the original debt may have been nonessential is irrelevant.
  • Student loans. Paying an old student loan isn't essential if the holder of your loan isn't hassling you. But paying the loan may become essential if the IRS is about to intercept your tax refund, the holder of your loan threatens to garnish your wages, or you are making payments under a "reasonable and affordable" repayment plan to rehabilitate your loan and get out of default.

Stick to Your Debt Paying Plan

Do not make payments on nonessential debts unless you have money left after paying the essential ones. Don't lose sight of your priorities if nonessential creditors are breathing down your neck. To learn about creating a budget to help you manage your personal debt, see Nolo's article Budgeting: How to Make a Budget.

Want More Information?

Solve Your Money Troubles: Debt, Credit & Bankruptcy, by Robin Leonard and attorney Margaret Reiter (Nolo) is a comprehensive debt guide that includes information on budgeting, controlling debt, and dealing with debt collectors.

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