What If You Can’t Pay All Your High Priority Debts
Although individual priorities may vary, in the main most people prefer to service the debts that allow them to keep their home and their car before worrying about any of the other debts they may have.
In some cases, you may find that your financial situation is so bad that your cannot even maintain required payments to those high priority debts. Your income, for example, may not be enough to pay the mortgage and the car loan.
One serious mistake that some people make in this situation is to pay smaller, low-priority debts if they cannot keep up with their high priority debts — “If I can’t pay my mortgage, at least I will keep up with my credit cards.”
Not a good idea at all. Virtually every strategy to keep your home and your car will mean you have to resume repayments again in the future. If you can’t make the payments just now, get in touch with your creditor and see if they will accept partial payments in the meantime.
If you absolutely cannot make the payments, it is by far and away the best decision to put the money aside to be used to pay the cost of moving home or to buy a second hand car for cash.
Although difficult, really do try to avoid making poor choices. It is hard to face the fact that you may lose your home or your car, but the consequences of poor choices can sometimes be far worse.
An example would be to refinance your low interest rate mortgage with a high interest rate mortgage in order to take the pressure off in the short term (the next few months), although ultimately it will quite likely prove to be hopeless
You have a better chance of working out a solution with the existing lender than you do of avoiding foreclosure by taking out a loan with an aggressive finance company that makes high-rate loans.
There are many strategies for dealing with debt problems discussed throughout this course. Occasionally, though it is best to step back and accept the inevitable change which money problems sometimes require.
Perhaps you can no longer afford to live in the home you are currently in, or maybe you need to sell the car you have now and replace it with a much cheaper one. At this point there are things you can do to make the changes in your life more bearable.
You may need to sell your home at a reasonable retail price so as to avoid a low price at a foreclosure auction, or making an agreement with your lender that they can take over ownership of the property without making you pay any shortfall.
These choices are difficult and have to be made based on your individual evaluation of your long-term prospects. Once the choice is made, however, it is a good idea to stop making payments on that debt in favor of other pressing items.
You absolutely do not want to pay debt on a property that you realise you cannot hold onto at all in the long run. You do not want to throw your hard earned money into a lost cause.
Feelings of moral obligation to particular creditors.
When you are analyzing your priorities you might feel that some creditors deserve repayment more than others. You might like some creditors whilst really loathing others.
You should never let these feelings become a factor in your decision making. Having your family thrown out of their home with nowhere to go just to pay your local dentist and accountants bill is far too much of a sacrifice.
If a creditor is sympathetic or has done you favors in the past, they are more likely to be patient as you work out your financial problems.
A similar situation arises in small towns or villages where there might be only one or two doctors or dentists servicing the community. You might not want to lose the access you have to these people and so you may feel obligated to pay their debts first. This may be a relevant concern but only in limited cases.
You should not assume that a business or a doctor will cut you off from future service right away if you don’t pay. Explain the situation and ask for patience.
Also, you may find there are other creditors nearby who you can use as alternatives should the need arise.
Everyone has financial problems at one time or another. It is nothing to be embarrassed about. Ask for help from creditors with whom you have a good relationship if you need it, and explain that you will make every effort to pay when you get back on your feet.
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