Debt Help Personal Finance

Which Debt Should I Repay First?

Erica Sandberg
Written by Erica Sandberg

Owe everyone under the sun and have no idea who should get repaid first, second and so on? It’s easy to get confused. You might be tempted to assuage the creditor that’s screaming the loudest, which is usually not the best plan.

Let’s say you have at least some of the following debts:

Overwhelming, right? Absolutely! So here is the list rearranged by order of repercussions. The debts with the worst consequences take priority over those with those that aren’t quite so dire.

1. Back child support payments.

This is the mother of all financial obligations. If you don’t pay, you could be found in contempt of court. After that, up to half of your net wages (including unemployment benefits) may be garnished, your driver’s, sport, and professional licenses may be revoked. Your car could be booted, tax refund intercepted, and a lien placed on your property. Public humiliation is permitted in some jurisdictions, and you could even spend time in jail.

2. Income taxes.

Owe the government and high interest and fees will accumulate very quickly. A Federal tax lien may be placed on your property (and listed on your credit reports). The government may also levy (seize) property and garnish your wages. Money in bank accounts, including what you’ve saved for retirement may be claimed, and your home or vehicle may be sold to pay for the debt.

3. Car title loans.

The interest for these loans is usually 25% per month, equaling an annual rate of 300%. Fall behind and the lender can repossess the car. How will you get to work? Go grocery shopping or drive the kids to school or the doctor? Eventually the vehicle will be sold at auction, and depending on the state you live in, you may also be required to pay the deficiency: the difference between what they sell it for and how much is left on the loan.

4. Owed vehicle payments.

You need to be careful with regular old car financing too. Pay late and your credit report will suffer. If the vehicle is on the new side, the lender may repossess it after only a few skipped payments. After that you’ll face the same problems as the car title loans.

5. Delinquent mortgage.

One might think that a home is more important than a car and that is true, however it can take a lot longer for a home to be foreclosed on than for a car to be repossessed. In fact, it takes on average of 19 months to process a foreclosure. That gives you time to deal with the problem – which you must do or you will be forced to find another place to live, and this time with a terrible credit rating which makes you an undesirable tenant or home loan borrower.

6. Defaulted student loans.

After about nine months of nonpayment, a federal student loan will be in default. The credit damage begins after the first missed payment, and will get progressively worse until the account is assumed by a collector. Fees and interest will be piled on. Up to 15% of your wages may be garnished and your tax refund can be intercepted without a lawsuit. With a lawsuit, the lender can take an even higher percentage of your wages.

7. Payday loans.

The interest on these loans is astronomical, amortized yearly at 400% or more. If you don’t pay quickly, the fees swell horribly. Stop paying and the lender will either take you to court or send the account to a collection agency, which also may sue you. Lose the case and you’ll have a judgment on your credit report and post-judgment collection action can kick in, which is usually a wage garnishment. Depending on your state, the judgment can remain in effect for a decade or longer.

8. Medical bills.

It’s hard to place these types of liabilities on this type of list because much depends on the amount owed. If the bill is for $35, the medical provider may eventually just let it go. But if it’s for $3,500, you will be facing aggressive collection action after just a few months of non-payment, and then lawsuits plus post-judgment collection action.

9. Owe money to friends or relatives.

These personal loans are tricky. Some loved ones may not mind so much if you renege on the arrangement while others won’t be so forgiving. If its the latter, an individual can sue you. Chances are you’ll wind up in small claims court, and if you lose the case you could be forced to pay. But more tragic: irrevocable damage to important relationships.

10. Unsecured loans and credit card balances.

These are basically the same when it comes to repercussion for not paying, so they tie for tenth place. Credit damage occurs with the first missed payment, of course, and it worsens over time. After about six months the lender will charge the account off (further poisoning your credit rating) and collection action and or lawsuits will take place.

11. Monetary judgments.

Already owe a creditor that sued you for an unpaid debt? As long as the judgment is in effect, the judgment creditor can take what’s theirs with whatever means they have at their disposal, including liens and levies.

12. Collection accounts.

And finally we come to debts that have landed in collection agencies. If you’ve ever had the pleasure of speaking with a person who works for one of these companies, you know they can sound mean and scary. So why do they fall to the bottom of the list?

Because if the debt is older than the statute of limitations for your state, there is nothing they can do to you except continue to list it on your credit report. After seven years, it can’t be reported any longer. On the other hand, if the collection debt is fresh, they can take legal action against you. The larger the debt, the greater this possibility is.

Now start to arrange your own array of obligations. As you can see, it’s not always linear – consider this list a guideline. For example, a family debt might be more crucial to you than your car. That’s OK. Just know what can happen if you fail to pay any of these creditors so you can make the most sensible and informed decision possible.

Which debtor on this list do you struggle with the most?

About the author

Erica Sandberg

Erica Sandberg

Erica Sandberg is a freelance editor at large, reporter, and advice columnist covering all things fundamental finance. She’s been KRON-TV’s on-air money and credit expert for over 15 years, and has appeared on virtually every national news show, from Fox to CNN. She hosts Making it with Erica, a video program highlighting ways to live adventurously on any budget.


    • Hello people,
      I am in the process of repairing my credit. YOU HAVE THE RIGHT TO CHALLENGE EVERYTHING ON YOUR CREDIT REPORTS. It won’t affect your credit, you want to make sure what is on it is what is suppose to be on it. CHALLENGE!!
      Best of luck to you all

  • I made the mistake of cosigning a student loan. I talked Sally Mae down from $23,000 owed to $8,500 of which I paid on a credit card. Now, the difference (between 8500 & 23,000) is on my credit report as a write-off, thus destroying what credit I have. Is there any way, other than waiting the time they have to keep it on my report, to get it off my report. It is satisfied, at lest that is what this predator said.

    • No to the best of my knowledge no, but you can go back and call your original credit or and ask if you pay it in full will they pull it from your report, s other than that sorry but the answer is no! You’ll just have to wait the seven years how do I know this my brother went through something earilie.simillar!

  • How long can a judgement stay on your credit? I hear each state is different. What about Ohio and this is a credit card debt judgement.

    • Every creditor has a resolution department. Call the creditor ask for their phone number, and fax. Then after you call them keep bugging them…theu will block you soon after that, if they’re not going to help ya. The keep faxing them every month a few times. Sooner or later they will delete it, but not answer it directly…worked for me. I fix credit reports

  • I live very carefully on $1800/month, am a divorced woman, 68, and disabled, I have no credit cards. no investments, no real estate etc. and my credit score is nothing to brag about which is why I no longer use credit. My problem is that the most modest rented apartment I can find is nearly half of my gross income and I don’t know where I could find enough money to move if there is any place left where I could live more comfortably or at least tread water on my modest income. Do you have any suggestions?

    • Don’t know if this suits your interests but many people who need live in personal care would enjoy opening up space in their home for you to live and pay for your time
      You might have to store your things with trusted other person or pay for part of a basement.
      Or you could find a space and interview possible houseshare persons…do you have a local elderservices do police background check and do diligence of course, In my state you can hire a personal aid if you are disabled and there are classes to give you independence and agency to set wages make personnel records set aside the taxes and create a direct deposit to your checking acct for personal care wages….do you know anyone who could live in and be your aid…help w bathing dressing, errands and cooking light housekeeping? Just a thought…

    • All major cities have rental assistance programs and with what little youve posted here you would easily qualify. Including in that use every place you can find locally for food pantries.

  • Debby
    March 14 2017
    The way I got out of debt was to list all my bills then put the interest I was paying next to each of them. Then I changed the list to the highest interest to the lowest. I only paid the minimum amount on all the bills starting with the second highest. I then called all my credit cards and asked them if they could lower my APR that I could not make the full payment, or ask them if they have a hardship program for those that have taken a cut in pay. You would be surprised, I got 5 out of 6 of my cards reduced down to 7.4%. Some of them were as high as 35.99%. Bryant Card Services gave me 6 months with 0 interest. I had to pay at least $30.00 a month by the due date and could not use the card during the 6 months. So I rearranged my list and put Bryant 1st, I was paying 35.99% on it. After I paid it off I starting working on the bill with the highest interest. By the time I had paid it off the smaller bills with lower interest were paid off. I had hospital bills and a Ashley Furniture bill that had no interest. I paid the minimum on the Ashley bill and sent the hospital $10.00 per month. Do a budget and get rid of any bills you do not need. You don’t need to eat out, you can take your lunch to work, you can use a kitchen hand towel instead of paper towels, you can turn off your hot water heater before you go to work then turn it on when you get home it will save you up to $30.00 a month. Make a list of all the money you spend in a month and then get rid of all the little extras you spend. I was spending over $300.00 a month on things I could do without. Shop around for car insurance and homeowners. I found Allstate had the cheapest homeowners and State Farm had the cheapest rates for car insurance. Between the two of them I saved $1056.00 a year. I should know how to get out of debt. I had to retire due to a brain disease in 2000. I was making $60,000.00 a year with a $500.00 car allowance per month and year end bonus. It was a wake up call when I had to go to $1100.00 Social Security. I lost all my investments after 911. So if I can do it you can too. Good Luck

    • I agree with your system of listing the ones with the highest interest rates. because I don’t have some of the debts listed in the article like car title Loans or payday loans which can have the highest interest rates. They will get you into serious financial trouble!!! i had not thought about calling the credit card companies and asking them to lower my APR but definitely will do that. I didn’t even know they would did that. Thanks

    • Hey thanks for the information I have been trying to get a handle on my credit for a while but I’m going to use this to my advantage.

  • So insightful so depressing to know I have been doing it all wrong! Now to get working towards doing the right things Thanks Mike you give me so much information I’m hoping one day I will get to buy that house and stop making mistakes with my money and credit. Thank you for the awesome work you do, you truly are helping me to try and do better

  • A little confused on the mortgage part
    It’s states “19 months to Foreclose”
    Is that correct and is it in every state???

  • I love your writings and truly appreciate the information that you provide us. I have sort of an off topic question/concern. I had a medical bills that the creditors tried to come after me to pay. The bill was for dental for my daughter who was a minor. This bill had to be when she was around 13. They are now threatening to place it on her credit report. Since she’s not longer a minor. Can they do this?

    LaTracia Palm Beach County, Florida

    • No they can’t. If she was a minor at the time of service an adult had to sign as a responsible party. That person would be billed and responsible for payment. Minors can’t be held legally responsible for any business service or agreement. If she was 13 and is now 18, 5 years have passed. Even though she can not be held liable for anything as a minor; some state have a limited time in which a bill can be collected and reported. Check your state. My daughter had a hospital bill that was from when she was sixteen and collectors tried to harass her to pay. She told them she was a minor when the bill occurred and was not the legal responsible party. When they heard that they quit calling and it was removed from her credit.

  • The only thing that I know of is credit card balance I’m still working on how to get that balance done to a zero.

    • this may also be reported to the IRS as income of$14,500.00.Sometimes the write off company does not report it. Legaly, they should

  • Your article was fantastic! However, you might want to check the numbering because there are repeated numbers even thought each point is different from all of the others. I counted 12, but the list only goes up to 10. Keep up the good work!

    • Victor,
      Thanks for reading! You can improve your credit score on your own by using the process discussed in our program (which you can access here), or by calling a company like CreditPros (at 855-980-4898) and getting their help to bring your score up. Best of luck!

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