What If You Can't Pay All Your High Priority Debts

By Ian Pelham

Although everyone has slightly different priorities most people will want to pay debts required to maintain essential shelter and transportation before worrying about other debts.

For some people in serious financial difficulty they might find that their salary is not enough to service both their mortgage and their car finance.

Some people mistakenly pay their smaller, lower priority debts when they realise they can't maintain the payments on their higher priority debts. They tend to think, "If I can't pay my car finance, at least I can pay my credit cards."

Not a good idea at all. Virtually every strategy to keep your home and your car will mean you have to resume repayments again in the future. If you can't make the payments just now, get in touch with your creditor and see if they will accept partial payments in the meantime.

If you are unsuccessful, save the money. You can use it later to make a lump-sum down payment to get caught up or to cover the costs of moving to a new residence or buying a new car.

Another pitfall to avoid it making desperate choices. Although it is hard to accept that you will lose a home or a car or other valuable property, the alternatives can sometimes be worse.

For example, refinancing a low-rate mortgage with a high-rate mortgage may buy you a few months, but in the long term the situation is likely to be hopeless.

Most times you stand a much better chance of arranging something with your existing lender than you do with a finance company who gives out high interest rate loans, and might very well be more inclined to foreclose.

There are many strategies for dealing with debt problems discussed throughout this course. Occasionally, though it is best to step back and accept the inevitable change which money problems sometimes require.

Perhaps you can no longer afford to live in the home you are currently in, or maybe you need to sell the car you have now and replace it with a much cheaper one. At this point there are things you can do to make the changes in your life more bearable.

These may include selling the property at a good retail price to avoid a low foreclosure sale price or giving up the property in exchange for a promise that the creditor will not make you pay any deficiency.

These choices are difficult and have to be made based on your individual evaluation of your long-term prospects. Once the choice is made, however, it is a good idea to stop making payments on that debt in favor of other pressing items.

Continuing to pay a debt on property that you will lose in the long term anyway is expensive. You do not want to "throw good money after bad."

Feelings of moral obligation to particular creditors.

In deciding your priorities, you may feel that some creditors are more entitled to repayment that others. You may have good feelings toward some creditors, but bad feelings toward others.

You should never let these feelings become a factor in your decision making. Having your family thrown out of their home with nowhere to go just to pay your local dentist and accountants bill is far too much of a sacrifice.

If a creditor is sympathetic or has done you favors in the past, they are more likely to be patient as you work out your financial problems.

A similar situation arises in small towns or villages where there might be only one or two doctors or dentists servicing the community. You might not want to lose the access you have to these people and so you may feel obligated to pay their debts first. This may be a relevant concern but only in limited cases.

You should not assume that a business or a doctor will cut you off from future service right away if you don't pay. Explain the situation and ask for patience.

Similarly, before assuming that you need to use a particular creditor, look around. There may be others in or near your community who are available in a pinch.

Everyone has financial problems at one time or another. It is nothing to be embarrassed about. Ask for help from creditors with whom you have a good relationship if you need it, and explain that you will make every effort to pay when you get back on your feet.

About the Author:

Ian Pelham is a marketer who has come through a very difficult time financially. He used debt consolidation loans to restructure his finances. Using a debt consolidation loan was one of the best things he did to rid himself of his bad debt.