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Empowering your money

Tips for which debts to pay first

Debts can be overwhelming, which is why it is important to decide which ones to pay first.

Video Transcript

- It's important to know which of your debts are essential to pay and which ones are not so essential, for the present that is. Basically, if they will incur serious consequences, they're an essential debt. Your rent or mortgage may be your most important expense. If you own a condo unit, failure to make your monthly association fees can result in a lean on your home. Child support payments should be at the top of your list. If you don't pay them, you could go to jail.

Bills for various professional services could result in legal action if they're not paid. You typically have a lot of breathing room for medical bills. Contact the medical provider and work out a reduced payment plan. Not keeping current with your insurance could make it harder to get new insurance. For health insurance, it can jeopardize any care you currently or plan to receive. With auto insurance, in some states, you can actually lose your driver's license. Failing to pay back loans related to your business could result in lawsuits and collection attempts.

Loans from family and friends are the least likely to affect you negatively if you miss payments or default. If your credit card is secured by an account with money in it, it's a priority and you shouldn't miss payments. If it's unsecured and you miss payments, you'll incur late fees. If you default, your credit will take a big hit and you may even get sued.

There is the possibility of deferring payments on your student loans. There is also the possibility of default. However, you can also lose any tax refunds from the IRS and possibly suffer garnishment of your wages.

You can work out a payment plan with the IRS if you're in a big crunch for paying your taxes. Stay financially fit friends.