Rearranging Personal Debt: Tips for Improving Your Financial Future

business-861323_640When you take on a loan, you are legally obligated to pay all of it back. Yet, not every unpaid loan comes with the same level of consequence. If the money that you have on hand won’t cover every payment that you need to make, you need to pay the priority debts first.

What qualifies as a priority debt?

Your mortgage or rent, loans taken on your home, your taxes, utility bills and child support payments are all essentials. If you don’t pay them, the consequences are usually the most difficult to take — loss of your home, loss of power or heating, or court summons. You could also include car payments on this list if you need your car to get to work. Not making payments for payday loans can be serious, too. While nothing immediate happens if you don’t service payday loans, they do quickly balloon up to impossible levels. And before opting for a loan consolidation company, you should also know are payday loan consolidation companies a scam or legit.

If you buy your own medical insurance, you should continue to pay for it. Being without medical insurance can seem fine for a while, but an illness can be catastrophic.

Most other bills are nonpriority ones — your credit card bills, overdrafts, personal loans and other unsecured debt will have to wait. If you don’t pay them, life doesn’t grind to a halt.

Notify lenders of your financial hardship

If you owe payments on your student loan, you can speak to the people in charge about arrangements that they may have for those experiencing financial hardship. The Federal Student Aid Information Center at FederalStudentAid.ed.gov, for instance, offers payment deferral programs. It is also possible to speak with the IRS for a monthly repayment schedule.

When you can’t pay, it’s important to not simply hide. It doesn’t make the problem go away. Being open about the challenges you face makes things easier. You will be able to keep the IRS from garnishing your paycheck for tax delinquency, and keep the law from suspending your driver’s license for not paying child support.

Deal with the nonpriority debts, as well

Just because your unsecured loans are not a priority doesn’t mean that they don’t need to be paid at all. If you’ve missed a month or so of payments, it’s time to contact the credit card company, and inform them about your inability to pay. They will often help you by lowering your interest rate and waiving penalties.

Be careful about services for those in financial distress

Many businesses attempt to help those in financial distress by offering them debt consolidation and debt settlement services. While these services can help in theory, you need to make sure that you are dealing with a genuinely qualified business. It’s never a good idea to go with businesses that cold-call you. Many simply promise results to those in distress, take their money, and disappear.

Declaring bankruptcy is an option

According to a leading bankruptcy attorney in Dayton Ohio, filing for bankruptcy is certainly no easy way out. It destroys your credit and forces you to start over life all over again. Nevertheless, in some impossible situations, it does offer you a way out. If you can plan to pay off all your debt in five years, you should do it. If you can’t, bankruptcy is a valid option.

Whatever way out you choose, it’s important, when you have a dire situation, to act immediately. Dragging your feet doesn’t make things better.

Abigail Reeves enjoys sharing her expertise on personal finance online via forums and articles. She has worked in the finance field for years and hopes her know-how can be of benefit to others.

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