Pay off the debt with the highest interest rate first.
Usually, food, housing, utilities, transportation and medical care take priority. Keep up on your mortgage or rent payment unless you plan to move to less expensive housing. This will help you avoid losing your house or getting evicted.
Common priority debts include:
Court fines. Council Tax. Your rent or mortgage.
Priority debts include:
Mortgage arrears. Second mortgages/secured loans. Ground rent/service charges. Rent arrears.
Prioritize tax debt and collections
When it comes to paying off debts, you should focus on clearing tax debts and debts that are in collections. For instance, you might address tax debts owed to the IRS first because failing to pay can lead to severe consequences like wage garnishment or legal action.
Here are some guidelines that can help you decide which bills you should pay first. Paying for food, child care, and essential medicine should be your first priority. You should always be a good steward of your money and spend wisely here. Don't overspend for food and unnecessary medicine.
Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
HIGH PRIORITIES
Pay for your family necessities including food and essential medical expenses. Pay your mortgage or rent. If you own your home, pay real estate taxes, insurance, condo fees and mobile home lot payments. Failure to pay these bills may lead to a loss of your home.
Stay organized by designating a place to keep all your paper and digital statements. This makes it easier to find info when payments are due. Use tools like spreadsheets, bill-paying apps, calendars, and payment reminders to keep track of due dates and organize info. Apps can even send alerts about upcoming bills.
It's best to tackle tax debt and debt in collections first to avoid legal issues. After that, consider these strategies: Prioritize debt with the highest interest rate. Focus on debt with the smallest balance.
Prioritizing debt by interest rate.
This repayment strategy, sometimes called the avalanche method, prioritizes your debts from the highest interest rate to the lowest. First, you'll pay off your balance with the highest interest rate, followed by your next-highest interest rate and so on.
Priority debt is a phrase referring to the most urgent or important debts that must be paid off in bankruptcy . Listed in the order of priority, these include alimony , child support , trustee fees , bankruptcy attorney fees, court fines, employee wage debt.
The debt avalanche method involves paying off your highest-interest debt first. To do this, you'll make the minimum monthly payment on every card or loan you have, except for the debt with the highest interest rate. Then, you'll put all your extra money toward paying down that balance as much as possible.
Every dollar counts. Once you pay off that credit card or other high-interest debt, put the money you were paying on your highest interest debt—the minimum plus the little extra—towards the debt with the next highest interest rate. Work your way down the list until you're debt-free.
Additional records such as statements, hospital bills, car repair bills, copies of prescriptions, etc. should be kept up to five years from the date the service was provided. Utility and phone bills: Shred them after you've paid them, unless they contain tax-deductible expenses.
The Best Ways to Pay Off Debt
Debt consolidation, the debt snowball method and the debt avalanche method are some of the best ways to tackle debt, especially if you have high-interest credit card balances. Here's what you need to know about how each strategy works and when to consider it.
However, paying all of your bills on payday or on a bi-monthly basis without savings to act as a safety net could leave you with limited funds and flexibility until the next pay cycle. Unexpected expenses or emergencies could also arise, which could leave you even more financially strained.
Pay Off High-Interest Loans First
With this approach, you pay off your loans from the highest interest rate to the lowest. You make the minimum payments on each balance except the highest-rate loan. You also make an extra monthly payment based on how much you can put toward the debt.