It is important to manage your debt intelligently, pay off certain debts first and find ways to reduce the possibility of the debt growing. Take into consideration the many types of debt you have, and create a plan for paying them back to the best of your ability. Here are a few tips to consider.
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Which debts are most important?
Start prioritizing. Some overdue debts pose larger risks than others. The most important debt to prioritize is mortgage on your home. Not keeping up with payments can be devastating both financially and emotionally. And since this is most likely your largest debt, paying it off will save you the most money in the long run. (See Ways To Protect From Foreclosure And Default Of Other Home Loans)
If you’re using your home as collateral, make sure to pay consistently so you will not lose your property. A car loan is also important if you need the vehicle for work or school. The more expensive the debt, the more important it is to pay it off as soon as possible. The more expensive debts cost the most in the long run, making it even harder to get out of debt.
Credit cards should also be paid because interest build up quickly. But missing a payment on your credit card is not as catastrophic as missing several payments on your home. That said, missing any type of payment is going to be harmful to your credit report.
If you must put off some debts until your situation improves, a school loan can often be deferred or lowered on a temporary basis.
Keep in mind that even if you cannot pay all your debts at once, you should try your best to pay the debt that is low priority. This helps manage the interest from building up.
Lowering your debt
If it seems impossible that you’d be able to afford all your debts within a reasonable amount of time, it may be time to seek financial help in the form of non-profit help center.
Debt consolidators sometimes buy your debts from the lender and help you come up with a single payment to make on several debts at once.
On a smaller scale, it is possible to get a low interest credit card and transfer debts in order to save money on interests. This method helps make smaller payments on the overall debt and interest by the time the debt is paid off.
In the end, the most important thing is that you work towards eliminating debts from your list. Once you have paid the essentials, do your best to start paying off the rest.