by Sara Williams

Created on: August 07, 2009

The following information may save your sanity, keep you in your home, and allow you the freedom of picking up the phone when it rings rather than after it goes to voice mail. Put simply, it will change your life. You know who I am talking to: you, the in-debt person, whose situation seems to be going from bad to worse every single day. In modern times, anybody can get into debt, even the most careful of people who try very hard not to spend beyond their means. Debt often feels unmanagable, and paying it back willy-nilly may make you feel like Sisyphus, the king of Greek myth who had to keep rolling the big rock uphill for eternity. One magic word to stop the downward spiral and begin that long, hard road to being debt-free? Prioritize.

How does a person begin to prioritze debt? First off, pay the most essential bills first. Obviously, you need to eat and have a roof over your head. After that, you need heat first if it's cold, then electricity. Next is the phone bill. After that, pay what bills you can as they are due. If you cannot pay all minimums on your debts, then the thing to do is determine which to pay first.

Which bill, after necessities, do you pay first? Most people absolutely say, pay off those with the highest interest rates first. I disagree and provide here a couple of exceptions to that rule. One, if you have a very small debt, consider paying that one off first. Say you have a store credit card with a balance of $200 owed on it, while other debts are much larger. Those debts might have smaller interest rates, but pay the $200 down first! Kill it now before it becomes a money sucking beast, snowballing from the constant addition of late fees, over-limit fees, and rising interest rates. Two, if you have a debt that you have never, ever been late on, try to continue that winning streak, even if you can only pay minimum every month. As they say, don't burn all your bridges. Three, a credit card company is trying to sue your butt or have you put in jail (it sometimes happens), or they are going to garnish your wages... obviously, pay them!

There is a lot of sense in paying the debts with the largest interest rates, by the way. With a roof over your head, food, water, heat, and no threats of jail time, then go on and start paying the high rate stuff down now. The reason is, these debts are the most expensive. Paying minimums on some cards, for example, might only be paying the interest each month... and the debt will never go down, even as your bank account balance does!

Pay down commercial debts, like credit cards or store credit, first. These have the highest interest rates, so as long as you follow the above rule, these will be the first to go, anyway. Then, consider avoiding having much of this kind of debt in the future. Live within your means and only purchase luxury items when money allows, preferably after having put away a decent amount of savings.

Pay student loans back last, if you have them. These can easily be deferred, even when out of school, or you can do things such as consolidate the loans and sign up for different kinds of repayment schedules that take into the account how long it takes to start a career and get your income up. Federal student loans, such as the Stafford Loan, also have low interest rates that remain stable.

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