Which Debts First?

When you are looking to get your finances under control it is important, early in the process, to prioritize certain debts above others. Differences in interest rates and consequences for default require careful consideration before you start paying. When you are unable to eliminate debt immediately your choice of which debts to address first can seriously impact how quickly you can eliminate your debt and how many problems arise in the process.

Borrowers should firstly ensure that their necessities are covered. Falling behind on mortgage payments, car loans, or utility payments could result in foreclosure of a home, repossession of a car, or having utilities cut off. In addition to the hardship these actions can create it should also be noted that debts of this kind typically carry a lower interest rate than credit card and other kinds of debt. Payments toward child support and taxes should also be a serious concern since failure to pay your legal obligations can result in wage garnishment, raised interest rates, or jail time.

Next, borrowers should attempt to pay off debts beginning with those carrying the highest rate of interest. Normally this means paying credit cards first to avoid the late fees and payment on accrued interest that create additional financial strain. Loan consolidation is another option at this juncture since consolidation may help borrowers access better interest rates and simplify the administration of their debt. Finally, deferred loans should be paid once the rest of your debt is under control.

Refinancing Do's and Don'ts

Refinancing is one method to manage debt. Refinancing can help a homeowner take advantage of lower interest rates or improved credit scores. Although refinancing is one way to resolve financial problems it can also cause more problems. As is often the case, a closer examination can help avoid serious problems. Here are some do's and don'ts when considering refinancing. Click the link below for additional detail or to find other resources that can help you make your decision.

The Do's

• DO compare the cost of refinancing to the cost of your existing loans;
• DO refinance higher interest rate unsecured loans with lower interest rate unsecured loans;
• DO refinance secured debts if the new loan is for the same length of time as your old loan or shorter and the interest rate on the new loan is lower;
• DO consider refinancing your home to pay off car loans or credit cards;
• DO watch out for refinancing scams.

The Don'ts

• DON'T refinance a bank loan with a finance company to get a lower monthly payment;
• DON'T refinance your home for more than its market value;
• DON'T refinance your home to pay unsecured debts like credit cards;
• DON'T refinance an unsecured loan as a secured loan;
• DON'T refinance because of pressure from a debt collector.