By: Brenda Schmitt
ISU Extension Family Resource Management Field Specialist
Many people when they are in a financial crunch, are forced to make decisions as which debt they should pay off first. The same is true if you receive an unexpected sum of money. Some people mistakenly think it does not matter what debt is paid off first. There are costs that are associated with debt and wise decisions should be made when paying off debts. There is a standard order in which debts should be paid. While this is a rule of thumb, it is not the “perfect” order for everyone. Keep in mind that minimum payments should always be made regardless of the order in which to pay the debts off.
Secured debts should be your highest priority. These are debts that are backed by collateral that could be taken away if you default on your payment. These include but are not limited to mortgage and auto payments. Utilities should also be at the top of your list of debts to pay off first. If you do not pay your utilities they will be shut off. If you have co-signed on a secure debt for someone else, even though it may not be your debt you should treat it as your own and make sure that payments are being made on time.
Non-dischargeable debt are considered medium priority. This is debt that does not go away if you should file for bankruptcy. This also included debts that could garnish your wages if you should default. These include but are not limited to child support payments, federal student loans and income taxes.
Unsecured debt is when a successful lawsuit would be needed for the creditor to take action and collect. These types of debts would only harm you in terms of your credit. This is opposed to the debts where property could be taken or default could result in imprisonment (income taxes, child support payments). These debts include but are not limited to credit cards and unsecured loans.
If you have missed payments and feel you are being harassed for payment, visit www.lectlaw.com/files/cos26.htm. Your rights provided to you by the government regarding debt collection are outlined.
More information about paying off debt, contact the Grundy County Extension Office and ask for publication PM1873a Using Power Payments to Pay Off Debt, or access the publication at /Publications/PM1873A.pdf.