How Do I Prioritize Paying Off Debt?

[Anonymous]

How do I prioritize paying off debt?  I know that the experts suggest that one prioritizes by how high the interest rates are, but I have more than just credit card debt.  I have tax liens, collections accounts, auto loans, etc.  Some say "charged off", some say "in collections", some say "closed", some say "open", some say "transferred", etc.  I don't know where to begin.

Please advise.  Thank you.

[westo12]

I think it would depend on what your goal is for paying off debt, to get out of debt in general, for a certain goal, say to buy a house, refi a car, get a better interest rate, etc.

Tax Liens would always be a #1 priority I would think, since I'm not sure you can do anything credit wise with one of those on your account.  I've owed the IRS/State Tax Collector, but never have been hit with a Tax Lien before.  I think I'd personally start there, even if it's getting in a payment arrangement with the entity, I've heard some will remove liens, once you've been on a payment plan for a while.  

[Anonymous]

Okay, here's my input.  I'd begin with Tithing 10% to your church or religious group from every paycheck.  People can argue about whether there's a God or not all day.  However, for as long as I've been giving 10% off the top of every paycheck, I've never wanted for anything.  On top of that, money has a way of finding me...like to $1400+ that the state department of revenue owed me when I overpaid my property insurance over 7 years ago or the thousands of dollars in scholarships I received in college while tithing 10% of my small paycheck (really really small)...Money I never even applied for by the way.  Put the man or woman upstairs first and watch how they put your debt first in getting it all paid off.

Secondly, I would put away 12% in savings every pay period.  You didn't get into debt overnight and you won't get out overnight...so get comfortable with the idea that it will take  time to get out of debt, pay yourself second.

Third, cut out all the things that you would have to if you lost your income tomorrow. This will be difficult, but I can speak from experience.  I ate things I normally wouldn't when I was downsized years ago.  I called mom with only $50 to my name and she told me what to buy at the store.  I had more food then than I would had I spent more money.

Get rid of your cellular plan and get Boost, Virgin or some other flat rate non contract plan.  Over two years that can equal $1200 in savings.

Snowball your debt...pay off the smallest balances first.  You feel a sense of accomplishment.  I wouldn't worry about the ones with highest interest because you won't feel like your making any progress. 

Cut gym memberships and subscriptions to five cerdit monitoring services, you only need Life Lock.  Their cheapest plan is 8.95 mo.

I'm salaried so I can't do this.  However, if you can work overtime, do so.

Protect your income,  look into a short or longterm disability policy through your employer to protect the income you have incase you're disabled or injured.

Finally,

Tithe, Pay Yourself, Live frugally, Trim from your existing expenses, Safeguard your income.  My family thinks that I'm wealthy and I am, but I did a lot by doing most of what I'm recommending.

Best,

Snoopy

[novabama]

Snoopy... that is an awesome answer and even though I did not post this, I'm glad I read your response! That was encouraging, thank you!

[Shogun]

OK... but the tithing is getting into religious beliefs and here is not the place for that.  Glad it works for you, and yes I'm christian, but no tithing in mine.

Now with that out of the way.  Cut out the excess, you know where that is.  Tax liens and judgements should take priority.  Next I do recommend the snowball technique because I personally used it and it worked great.   Good Luck!

[Anonymous]

Hi westo12,

Thank you so much for replying.  I have several goals:  getting out of debt, getting better interest rates, purchasing a new(er) car and purchasing a house. 

I will definitely begin to tackle the tax liens.  It is encouraging to know that some may remove liens once I've been on a payment plan for a while.  (I owe the IRS as well so I need to create payment arrangements with them as well.)  Clearly, I was negligent for some time, scared to face my debt is more like it, but that is no more.    I have started to face all my fears and face my finances so all of this advise is truly need and much appreciated.

Thank you again.

[Anonymous]

Hi Snoopy7,

Those are some amazing suggestions, many of which I am already doing so I am glad to know that I am on the right track.  I also appreciate your sharing your story.

I already tithe first (10%) and save second (10% for now).  I have also trimmed down most of my expenses and downgraded where possible.  I am currently unemployed, but when I am employed, I have always obtained both short- and long-term disability via the employer, but your post reminded me that Suze Orman suggests to obtain disability independent of my employer as well.

THANK YOU, thank you, thank you for the suggestion of snowballing the debt.  I have been feeling so overwhelmed with all of the debt and not knowing where to start and how to prioritize.  The snowballing technique definitely makes things easier to manage and definitely less daunting. 

Clearly your suggestions have worked for you, and you have created what appears to be a comfortable, happy life for yourself, and I commend you.

Thank you, again, and God bless.

[Anonymous]

Novabama, I completely agree with you,

[Anonymous]

Hi Shogun,

I have definitely cut out the excess, and I will certainly start with the tax liens and judgements, and then the snowball technique; it really does make simplistic sense and makes tackling my debt more managable and less overwhelming.  Thank you for the confirming both that I should start with the tax liens and also confirming that the snowball technique works.

I understand what you are saying about discussing religious/spiritual beliefs, but I personally don't mind discussing tithing, especially because I believe in it, and I practice it.  I am sure that folks who don't agree would respectfully agree to disagree or just use the information they find pertinent to them and ignore the info that they don't. 

Question for you:  do you suggest that I tackle the tax liens and judgements BEFORE dealing with the other debt (of course, starting with the smallest debt first), or should I try to undertake the tax liens/judgements AND the other debt, if/when possible?

Please advise.  Thanks again.

[Anonymous]

I agree that you may not want to talk about religion on here, but anytime and anyplace is acceptable to discuss religious beliefs so long as one does not impose on anyones else.  I shared MY story.  Never did I mean to create an uncomfortable situation for you by addressing something you did not want to explore.  Please accept my apology, but I cannot and refuse to put God in a box!  Last time I checked, the bylaws on this site did not say we could not discuss religion.  But I'll refrain because I do believe in "A time and a place".