If you’ve got a large number of different debts to repay, then it can be difficult to know where to start. After all, your creditors will all expect their money on time, and if you fall behind with even one, then you might find yourself on the receiving end of debt collectors. However, if you find yourself in this situation, then the only way to get out of it is to make a change to the way you deal with your debts. That’s not to say that you should just ignore some debts completely. However, there are certain repayments which need to be made, such as your mortgage- if you default on these payments, then your home could be repossessed. With others, the consequences of missing a month are less drastic, so if push comes to shove these can be put off while you focus on other debts. In this article, we’ll explain just how you can prioritise your debts, to make your debt a bit more manageable.
Secured Vs Unsecured Debts
First of all, let’s take a look at the two main types of debts: secured and unsecured. With the former, your loan is secured against something you own- your home or car being the most common examples. If you default on these loans, then your creditors are entitled to repossess these items to cover the cost of your missed payments. On the other hand, unsecured loans don’t come with these terms. Falling behind on your payments will have a negative impact on your credit rating, and could eventually lead to court action, but this process takes time. You’ll have a chance to settle things out of court, whereas creditors on a secured loan will be able to act much faster. If you have to make smaller payments on a loan, then any unsecured loans should therefore be your first choice.
What Should I Focus on First?
At the end of the day, you need to keep a roof over your family’s heads. You should therefore push your rent or mortgage to the very top of your priorities, and ensure you are always on top of these payments. The same thing goes for utility bills, since if you fall behind with these payments, your providers will simply shut off your water, gas, or electricity before they try to get any money back from you. You’ll also want to avoid falling into arrears with your council tax, as this could easily lead to a visit from the bailiffs. Unlike your rent and utilities, though, your local council might be a bit more lenient if you speak to them and explain that paying the full amount will mean you can’t afford to keep on top of other bills. That’s not to say they will always accept smaller payments, but if you are in this situation, then it’s certainly worth a try.
Stopping Your Debt Growing Any Further
While prioritizing your debts is the smart thing to do in the short term, when you’re struggling to make repayments for a month or so, you shouldn’t use it as a long-term solution. If you do, then you may find that your unsecured debts continue to build up without you realising. Even if you make smaller repayments on your credit card bills, you might still incur higher interest rates that rise and rise as time goes on. If you find yourself in this situation, then it might be time to speak to a financial professional, who can help you restructure your debts into something more manageable.