Which of My Debts Should I Repay?

You should pay certain debts before you pay others. Learn which debts are high priority.

It’s more important to pay some debts than others. If you’re having trouble keeping up with all of your bills, figure out which ones are high-priority debts and be sure to make those payments first.

High priority debts are ones that are secured by collateral that you want to hang onto, like a house or a car. Certain unsecured debts are also high priority, like utility bills, child support, and federal student loans in some cases. After all, if you don’t keep up with these kinds of debts, a creditor might foreclose on your home, repossess your car, or shut off the utilities. The IRS can intercept your income tax refund to collect a defaulted federal student loan. You could potentially go to jail for unpaid child support.

Read on to learn more about which debts are high priority and which ones aren't.

High-Priority Debts

Always pay your high-priority debts first. Don’t pay low-priority debts unless you’ve already paid the high-priority ones, even if your creditors insist that you do so. High-priority debts ordinarily include:

Mortgage. You’ll likely lose your home to a foreclosure if you don’t make the mortgage payments. If you’re having trouble staying current, you might be able to work out a loan modification and get a more affordable monthly payment. If you've lost your job or had another financial setback, carefully consider whether you should sell your house and rent a moderately priced place. You can then use what's left over to pay your other essential bills.

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.

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, it’s best to keep up with these payments. If you don't need a car in order to work, consider selling the vehicle or voluntarily turning it over to avoid repossession. You might 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—guarantees repayment of the debt. If you don't pay the debt back, the creditor might be able to come and get the property without first suing you in court. If the item is something you can’t live without, make the payments. Otherwise, don’t be too concerned about missing a payment or two. (Keep in mind, though, that a default or repossession will show up on your credit report for seven years and will affect your ability to get credit in the future.)

Student loans. Paying your student loans is sometimes essential, like when the IRS is about to intercept your tax refund, the holder of your loan threatens to garnish your wages, or you're making payments under a "reasonable and affordable" repayment plan to rehabilitate your loan and get out of default.

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

Medium-Priority Debts

Some debts straddle the line between high and low priority. When deciding whether to pay these debts, you need to consider various factors, like your relationship with the creditor and whether the creditor has initiated collection efforts. Medium-priority debts generally include:

Medical insurance or bills. If you are currently under a physician's care, you'll want to continue making payments.

Credit 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. And, again, falling behind in payments will damage your credit.

Court judgments. Once a creditor gets a judgment against you, the creditor can generally collect it by garnishing your wages or levying your bank account. If a particular judgment creditor is about to grab some of your money, the fact that the debt may was originally low-priority doesn’t matter.

Low-Priority Debts

A low-priority debt is one that doesn’t have immediate or devastating effects if you don’t pay. While paying these debts is a desirable goal, they're usually not a top priority. (Remember that failing to pay a debt causes it to stay on your credit report for seven years.) For example, low-priority debts typically include:

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 might face a lawsuit.

Loans from friends and relatives. You might feel like you need to repay these kinds of loans, but your friends and relatives are most likely to understand that you’re in a tight spot.

Other unsecured loans. An unsecured debt, like credit card debt, is one that doesn’t have collateral. This means a creditor can’t take your property without first suing you in court.

Getting Help

If you need help deciding which of your debts are most important to pay or need other financial advice, consider talking to a lawyer or an accredited, nonprofit debt counselor. The National Foundation for Credit Counseling website is a good place to start looking for one.

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