Large amounts of debt can be overwhelming, particularly if you don’t know where to begin to pay it off. Before you decide how you are going to manage your debt, make sure you have the priorities straight and know which bills you need to pay first.
Budget the Necessities
When deciding on a budget and how much you can put toward paying on your loans, first think about paying for the necessities. Use the appropriate amount of money for groceries and medical expenses. Then put money toward your rent or mortgage payment. After you have paid these expenses, pay your utility bills so you don’t have to worry about going without water or electricity.
Remember that you need to take care of yourself and your family, first and foremost. After that, you can begin to pay off your other debts.
You may have many different types of debt like student loans, car loans, or credit card debt. The first debts you should pay are the secured ones. This means that there is a physical object acting as collateral on the debt. An example would be using your new car as collateral on an auto loan. If you do not make your payments, the lender has a right to take the collateral.
After you have your secured debt under control you can begin working on your unsecured debts. These are the loans where you agree to make payments, but no physical property will be taken from you if you do not make them. The most common form of unsecured debts are credit cards.
If you feel like you won’t be able to make regular payments, you should let your creditor know as soon as possible. This will help you both and you can try to create an extension or a payment plan that will work for you.
We offer a few words of caution. Be careful about automatically assuming that consolidating your loans will be a good option. While this does benefit you sometimes, often creditors want you to consolidate so they can charge you more interest over time.
Additionally, don’t let creditors use scare tactics to force you into making that debt a higher priority. Only if a court decision is made should you worry about moving an unsecured debt up higher on your priority list.
Watch Legal Obligations
Always make the payments that could get you into legal trouble if you ignore them. This includes child support, income taxes, and court judgments on debt. Failure to pay these could result in heavy fines or jail time.
Whatever your strategy to get out of debt, make sure that you are keeping your priorities straight and they comply to the Bankruptcy and Insolvency Act Canada. Pay what is necessary to remain fed, sheltered, and taken care of. If you need help in knowing the best way to pay off your debt, schedule a free consultation with us today.