Choosing which debts to pay first

ST. PAUL, Minn. (1/12/2009) — Are you faced with making decisions on which debts to pay first due to lack of or limited income? You are not alone. There are no guidelines set in stone but the National Consumer Law Center has provided these rules to help you set priorities.

1. Always pay for family necessities first, usually this means food and essential medical expenses.
2. Next pay your housing related bills –rent or mortgage plus home owners/renters insurance and real estate taxes.
3. Pay what you must to keep essential utility service. This may not always require full payment.
4. Pay car loans or leases if you really need a car and car insurance. If you have more than one car can you get by with only one?
5. You must pay child support –it’s the law. Failure to do so can result in imprisonment.
6. Income taxes are high priority debts –pay them but check to see if you are taking all the allowable exemptions so that you are not paying too much.
7. Student loans are medium priority debts and should be paid before lower priority debts. These debts do not go away and seizure of tax refunds can result.
8. Loans with no collateral or loans with only household goods as collateral are lower priority.
9. Do not pay a debt when you have good legal defense to repayment-- the goods are       defective or the creditor is asking for more money than they are entitled to. You should seek legal advice to determine if your defense will succeed.
10. Court judgments against you move the debt up in priority.
11.  Co-signed debts should be treated like other debts. If you have put up your home or car as collateral it is a high priority debt, if the other co-signer is not keeping current on the debt.
12.  Refinancing is rarely the answer unless you do not take on further debt and can make the new payment you are agreeing to.

13. Threats by debt collectors to ruin your credit score should not be a reason to move the debt to higher priority. Typically, the creditor has already provided the credit bureau with the status of the account. Be polite to the debt collector but make your own choices based on what is best for your family. 

Always alert your creditors to your financial situation. Many creditors are willing to work out a repayment plan that you can handle. It is in their best interest.