Living with debt is just a part of everyday life. However, for the unfortunate few who have mounting debt that has started to affect their mental and financial health, it is best to know more about debt priority. The truth of the matter is that not all debts are the same and equal because there are more serious debts that should be paid off sooner than others. If this is news to you and you have simply been paying your different debts without a plan of action, it is time to change your way of doing things. These are the debts to pay immediately to help you avoid any possible legal trouble in the future.
1. Tax Debt
Owing the Internal Revenue Service (IRS) can be a very stressful experience for anyone. Tax debt can occur when someone underreports or underpays their rightfully owed taxes. Whether this was done on purpose or because of an honest mistake, the IRS will take your debt seriously. Making tax debt your number one debt priority is a must, especially if there is a tax lien on your home or other assets. If the debt goes unpaid for too long, the IRS will take your assets as repayment. Even worse, once the IRS has collected what they are owed, it is nearly impossible to regain all of your assets. Get help with your tax debt.
2. Court-Ordered Judgments
Once legal action for debt is involved in the form of court-ordered judgments, it is important to pay off this form of debt as soon as possible. Once the courts grant a debt collector judgment, they can take drastic actions as the consequences for unpaid debts. When the debtor fails to pay a court-ordered judgment, the collector will often start wage garnishment. This means that the amount owed will be automatically deducted from your source of income until the debt is paid in full.
3. Child Support and Alimony
When you miss payments for either child support or alimony, you can be charged with civil contempt. In some states, the provider only pays a fine, but in other states, they are arrested. Their bank accounts are seized, driver’s licenses suspended, and passports are confiscated.
If the initial agreed-upon amount is no longer manageable, it is always possible to speak to your lawyer to make payment adjustments. Otherwise, you can create a payment plan where you can make up for the lost amount to avoid any future arrests and wage garnishments.
4. Secured Debts (Mortgages and Auto Loans)
Secured debts are large, serious debts where collateral, usually property, is given to ensure the borrower pays the lender. This type of debt is commonly incurred when a borrower applies for an auto loan or a mortgage. It is crucial to make secure debts a priority because borrowers who default on their loans will have their collateral taken away from them. It is very common for property or other assets to be lost during a debt settlement because they were used as the guarantee that the amount owed will be paid.
5. Studen Loan Debt
Student loans seem like a rite of passage for many North Americans. Making menial payments instead of adding your student loan to debts to pay immediately is a big mistake. Student loans come with high interest rates, so the longer you pay off the debt, the more you end up paying which can affect your credit score and other finances. Some private lenders also result to wage garnishment if the borrower fails to make regular payments. Debt forgiveness and flexible payment plans are possible options, especially for federal student loans. It is best to look into your payment options rather than defaulting.
6. Unsecured Debts with Aggressive Collection Tactics
Unlike secured debts, where collateral is expected, unsecured debts are smaller loans where the lender does not expect collateral. However, these unsecured debts often come with very high interest rates where the borrower pays more than twice the amount they borrowed in the first place. Aside from high interest rates, aggressive debt collection tactics may include wage garnishment, wherein the loan amount and the excessive interest are directly collected from your bank account before you access your money.
7. Debts with Impending Statute of Limitations Deadlines
People with multiple growing debts will find debt management assistance to help them either consolidate all their debts or make a debt settlement. If this is the case, a deadline is also set once a debt settle has been officially agreed upon in court. The person or business is required to pay the settlement amount before this deadline. Once the deadline is missed, they can be arrested and charged with more serious crimes. It is best to avoid legal trouble with debt by paying off what you owe before the deadline.
8. Debts Involving Fraud or Misrepresentation
Any debts that were incurred due to misrepresentation or fraud can be considered a criminal offense. Once debts are moved from a civil matter to a criminal case, the consequences of unpaid debt become more serious. There can be a timeframe where the offender can request leniency from the court by promising to pay their debts, either in full or with an agreed debt settlement amount, but once this debt goes unpaid, the legal action will be swift and harsh.
Debt Priority is a Serious Matter
Whether you are dealing with credit card debt problems or something more serious, such as missing tax payments that have resulted in tax debt, it is important to know which of your debts to pay immediately. Yes, it can be stressful to deal with your finances, but it must be done sooner rather than later. The more you ignore your debts, the bigger the chance of legal action for debt being taken against you. Start debt management by prioritizing your debts in order of importance. It’s not too late to winning the debt game.