In order to get started with a plan to resolve your debt, you will need to take a look at your overall debt picture and come up with a practical spending plan. This usually starts with tracking your monthly expenses and deciding how to distribute payments. Tailor your spending plan to your needs and adjust it as your needs change. If you haven’t done so already, create a spending plan and/or budget.

Although coming up with a spending plan is important, it does not tell you which debts to pay-off first, especially if you can’t afford to pay all of your bills. You’ll first need to sort out which debts are your highest priorities. Keep in mind that everyone’s situation is unique and priorities may differ.

Cover your family necessities first.
Never let a creditor pressure you into making a payment, especially if you can’t even cover household essentials. This is particularly important if you can only afford some of your payments and need to prioritize your debts more carefully. There are many ways you can approach the topic, but a good way to decide how to pay your accounts is to divide them by secured debt and unsecured debt.

  • Secured Debt – This type of debt is tied to an asset that is considered collateral. Two of the most common examples are car loans and mortgages. In these cases, your creditors can take possession of your physical property if you fail to make your payments. If the lender takes your asset because you’ve been delinquent on your bills, the asset will be sold. However, if the selling price for the asset doesn’t cover the debt, in some states the lender may still pursue you for the difference.
  • Unsecured Debt – This is the opposite of secured debt. Any debt that does not have a specific piece of property tied to it is considered unsecured debt. While you may have a number of items that you purchased with credit cards, they are not considered secured debt. In most cases, a credit card company cannot repossess the items you bought with credit cards. They would have to take you to court and obtain a civil judgment.

No matter what kind of debt you have, never carry more debt than you can reasonably pay off. However, if you’re strapped for cash and faced with the difficult decision of paying only some bills, the secured debts are typically the better choice. These payments are often harder to catch up with and could cost you essential assets, like your house or car, if you fall behind on payments.

In other instances, you might give more priority to unsecured debts if you’re making extra payments to pay off some high cost debts. Sometimes, unsecured debts have higher interest rates that make it expensive to spend a long time paying them off. Even when you’re repaying your debts, it’s important to attempt to keep up with the minimum payments on ALL of your accounts.