The Best Ways To Prioritize Your Debt
We all have a limited amount of income that we earn each year
. And when our expenses begin to exceed the income that we are bringing in, we have to make choices. This involves prioritizing debt.
The first step towards prioritizing your debts is to find out what they are. Surprisingly, many people have no idea. The best way to do this is to take a piece of paper or a spreadsheet, and start to list all of your debts. This includes things like your credit cards, rent, mortgage, car payments, utilities, tuition - everything.
Don't omit any of your debts. When you are certain that you have all of your debts listed, organize them. At the top of the list place the ones that will have the most negative impact on your life if you were to not pay them. You do this because you may not be able to pay all of your debts. If two debts are of equal importance, the one that should take priority is the one that is charging you the highest interest rate. By the time you complete this list, you will have a really good blueprint as to the order in which you should pay your bills.
When making up your prioritization list, don't forget to include late fees in your ranking. In some cases, this is even more important than the interest rate because of the really huge late fees that many companies have started to charge. So, for example, if one credit card charges 12% with a twenty five dollar late fee charge and a second card charges 10% but has a fifty dollar late fee charge, it might be better to prioritize the second card even though it has a lower interest rate.
Of course these are not the only things to consider. You will undoubtedly think of more as you start your list. The important thing is that going through this process will force you to actually read the credit agreements on many of the debts that you have. You may be surprised to find what kind of liabilities you are subject to.
When should you go through the process of prioritizing your debts? The best time is right now - whether you have many debts or not. Don't wait until your bills are starting to pile up on you before making your list. Doing this helps you a great deal even if you are not behind in your payments. It forces you to be aware of how much money you are actually spending.
The biggest reason why many people wake up one day and discover that they are knee deep in debt is that they lose their primary job or other main source of income. But another large part of why people fall into debt is that they simply don't pay attention to the debts that are piling up. Before they know it, they owe too much to catch up. Keeping a prioritization list like this helps you to pay attention.
The Best Ways To Prioritize Your Debt
By: Susanna Berlatsky
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