How To Prioritise Debts

Prioritizing debts that need to be paid you should first categorize the debts into the following categories and identify 1. the repercussions of not making the monthly payments and 2. not paying the debt in full.

1. Urgent Action Debt – debt that is pending an escalation of a legal or default matter. This may be a creditors petition for bankruptcy, receiving a default notice, a threat. (Ask yourself – 1. the repercussions of not making the monthly payments and 2. not paying the debt in full)
2. Important Action Debt – debt that has already been defaulted but not under an arrangement at this time or debt that is not pending legal action. (Ask yourself – 1. the repercussions of not making the monthly payments and 2. not paying the debt in full)
3. Ongoing Debt – debt that is currently being managed and is under an agreement. (Ask yourself – 1. the repercussions of not making the monthly payments and 2. not paying the debt in full)

Once you have categorized the debts this will allow you to prioritize the most important actions to take, including which debts need to be paid and the time you have available to pay both the monthly payment and the debt in full. Debts that need to be paid in full could be paid via your own fund or a debt consolidation home loan.

Based on the above points a Category 1 Debt needs immediate action:

• Category 3 debts can have the minimum payments made so keep making the minimum payment.
• Category 2 debts have already defaulted so nothing you can do apart from a lengthy fight can resolve this, hence the most you would need to do would put the remaining debt under an arrangement to avoid these debts entering under a Category 1 debt.
• Category 1 debts need action immediately to halt further legal action or defaults being listed. These debts may have been managed reasonably well, but if not attended to make leave you with a long term issue.

At times it is difficult to identify where debt is located in the debt collection process, such as in the case of tax debt. the ATO could have identified a tax debt and placed a business within their debt collection process however the business may not understand the collection process.