If you have decided to take control of your debt and pay it down, you have made an important first step. However, you now need to decide which debts to pay off first. Prioritizing which debts to pay off may be difficult to do when you consider all the different variables, such as the following:
1) some debts will have higher interest rates than others;
2) some will be larger than others; and
3) some will be for items that are essential to your daily living needs.
Considering the above factors, the most important debts you should pay relate to your life necessities — your home mortgage, car loan and utility bills. However, because home mortgages and car loans often have lower interest rates associated with them (when compared to credit cards, for example), you will probably want to spend the smallest amount of money possible on those debts. Therefore, for home and car loans, it may be wise to simply pay the minimum amount due.
Next, keep in mind that child support payments and tax bills should take secondary precedence. Since failure to pay your child support or your taxes could result in serious legal consequences, be sure to prioritize these bills after your life necessities have been paid. Also, since tax debt and child support back payments are not dischargeable during bankruptcy proceedings, these debts will never disappear until you actually pay them off, so you might as well stay on top of them.
Finally, and very importantly, once the above obligations have been satisfied, you should use your extra cash to pay down higher interest rate debts, i.e., debts associated with credit cards, same-day paycheck loans and other high-interest loans. Start with your highest interest loan first, and once that is paid off, work your way down by applying as much of your spare money to paying off those debts as possible. Eventually, if all things go according to plan, everything will get paid off.
If you are struggling with paying off your debts, you may want to discuss your current situation with a Kentucky debt relief or bankruptcy law attorney. An attorney can help you decide whether bankruptcy or another kind of debt resolution strategy is right for you.
Source: FindLaw, “Which Debt to Pay Off First,” accessed March 25, 2016