Book Gives Advice on Which Debts to Pay First
Q: When you can't pay all your bills on time, how do you choose what debts to pay first?
A: This is a question often asked. To answer it, I'm going to pass along some excellent advice from the new, revised edition of "Surviving Debt: A Guide for Consumers," just out from the National Consumer Law Center.
Here are 16 rules the book gives for choosing which debt to pay first: 1. Always pay family necessities first. Usually, this means food and essential medical expenses. 2. Next, pay your housing-related bills. Keep up mortgage or rent payments if at all possible. Homeowners must pay real estate taxes and insurance premiums, unless they are part of monthly mortgage payments. Also, give high priority to any condo fees or mobile-home lot payments. If you fail to pay any of these debts, you can lose your home. 3. Pay what you must to keep essential utility service. Working hard to keep your home makes little sense if it's not livable because you have no electricity or other utilities. 4. Pay car loans or leases if you really need your car. Also, stay current on your car insurance payments. Otherwise, the creditor may buy for you, at your expense, even more costly collision and theft insurance that gives you much less protection. 5. Pay any child support debts. If you fail to make such payments, you could go to prison. 6. Give income-tax debts high priority. You must file your federal income tax return even if you cannot pay any balance due. The government has many rights that other creditors don't have, particularly if you fail to file your tax return. 7. Give low priority to any loans without collateral, such as most credit-card debts, bills from hospitals, doctors and other professionals and open accounts with merchants. In the short term,, since you haven't pledged any collateral, there is rarely anything these creditors can do to hurt you. Even in the long term, many won't bother to try to collect. 8. Give low priority to loans with only household goods as collateral. Creditors rarely seize household goods, because they have little market value and because using a court process to seize them is costly and time consuming. 9. Don't move a debt into higher priority because the creditor theatens you. Many such threats are never carried out. Also, much of your property may be safe from seizure even if a creditor bothers to go to court. …