Which Debts Must You Repay?

Some debts should be paid before others. Learn which debts should be your top priority.

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

Essential Debts

An essential debt is one that you should put at or near the top of your list for payment. If you let an essential debt slide, you could face serious consequences.

Rent. Unless you know you are going to move and have a place to live, make paying your rent a top priority.

Mortgage. If you've lost your job or had another financial setback, carefully consider the pros and cons of selling your house.

  • Reasons to sell. You might be better off selling your home, renting a moderately priced place, and using what's left over to pay your other essential bills.
  • Reasons not to sell. Consider the housing market. If your house will be worth more in a year than it is today, you might wait and sell later. That would give you more money to pay your creditors. For more information, see Nolo's Selling a House area.

Child support. Failing to pay child support can land you in jail. What's more, a child support debt never goes away -- it doesn't expire, and you can't wipe it out in bankruptcy. You'll have to pay this money sooner or later, so you should try do it when it will help your kids the most.

Utility bills. Being without gas, electricity, heating, water, or a telephone is not safe -- put these bills near the top of your list.

Car payments. If you need your car to keep your job, make the payments. If you don't, consider selling it or voluntarily turning it over to avoid repossession. You may be able to use any leftover money to buy a cheaper car.

Other secured loans. A debt is secured if a specific item of property (called collateral) is used to guarantee repayment of the debt. 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 the property is something you cannot live without, stay current on your payments.

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. But a default on a loan or a repossession of property will appear on your credit report for seven years and will affect your ability to get credit in the future.

Unpaid taxes. If the IRS is about to take your paycheck, bank account, house, or other property, immediately contact the IRS to set up a repayment plan.

Nonessential Debts

A nonessential debt is one with no immediate or devastating effects if you fail to pay. Paying these debts is a desirable goal, but not a top priority. Just remember that failure to pay any debt will cause it to stay on your credit report for seven years.

Department store and gasoline charges. 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 are most likely to be understanding of your predicament. See if you can defer making payments until you are back on your feet or agree on an alternate repayment plan.

Newspaper and magazine subscriptions. These debts aren't essential, but failure to pay will lead to collection actions.

Legal and accounting bills. These debts are rarely essential, but may lead to threatening letters and lawsuits if they remain unpaid.

Other unsecured loans. An unsecured debt is not tied to any specific item of property -- in other words, there is no collateral for the debt. This means that a creditor cannot take your property without first suing you in court.

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