How to Prioritize Debt
To prioritize your debt, you first need to determine what your current debt is and decide the impact that it can have on your life now and in the future.
If you have tax debt, clearing past due taxes should be one of the first debts that you clear. You should look at it first due to the penalties and compounding interest that you will have to pay, and the fact that the IRS has so big power to seize assets. They can also make life very difficult for you.
Your mortgage is another debt that needs to take top priority as losing your house can impact on your ability to pay all your other debts. Not to mention that it is your home. If you don’t own your own home then you need to ensure that your rent and utility bills are kept up-to-date so that you have a roof over your head and are able to live comfortably as you work your way through your debt.
You should have a prepared budget that you track and update on a weekly basis. I have built a template that I update almost every single day in order to stay on top of my finances. I share that template with instructions and print screens on how to use it, when you sign up for updates via email.
Your budget will give you a clear indication of the total amount of debt that is owing to others and from there you can set your priority list. Start working with the people you owe money to and sort out payment plans with your creditors and take the first steps to clear your debt.
Medical bills and court-ordered child support debt are also high on the priority list as failure to pay these can result in drastic action being taken that will once again make it difficult for you to work your way through your other debts.
Car loan repayments are a priority because car finance companies will not hesitate to repossess your car if you fall behind with the payments. Having a car repossessed can impact your ability to get to work, get your kids to/from school, keep a job and ultimately it will have a negative effect on your credit score. You need to keep your credit score at top of mind in order to be financially successful. I have written a post all about understanding your credit score if you need to understand it better.
The first step in prioritizing your debt is putting together your budget. Follow the steps in the posts in the Budget 101 series to get there.
If you’re looking for my budget template, you will gain immediate access when you sign up for email updates.
Disclaimer: I am not a financial professional and don’t play one on tv. The information provided on Single Mom on a Budget.com is my own opinion and should not be construed as fact or advice, and you follow it at your own risk. You are responsible for your own personal finances and should not rely on this site to make the final decision for you. This blog is my means of communicating my experiences to you and to prompt you to think and consider your own situation, but you are 100% responsible for any actions you take. Always consult an attorney or tax professional regarding your specific legal or tax situation.