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When dealing with debt repayment, credit cards, car
loans, personal loans, and student loans should be considered
first. Repayment of your highest-rate and nondeductible debt
should be first. Only after the credit cards, personal loans
and car loans are paid off should you even consider repayment
off a student loan or business loan. Mortgage interest is
typically the last debt you would ever want to pay off.
Never touch an IRA or 401(k) for repayment of credit cards,
car loans, student loans, or mortgages. Depending on your
state and federal tax bracket, you’ll typically give
up one quarter to one half in taxes and penalties of whatever
you withdraw.
There is debt which must have repayment, and for the
most part cannot be negotiated. Mortgage debt, land debt,
school loan debt, alimony debt, wage debt, and child support
are all secured and priority debt. Property will be repossessed
or you will be taken to jail if there is no repayment on debt.
Here are the classes of debt.
- Mortgage Debt - A home mortgage is the most important
debt obligation. It should be the first obligation that
gets paid each month. By law mortgage holders have every
right to contact one concerning a mortgage debt, however
a request can be made that they not call at a place of employment.
In addition, the best way to prevent this type of activity
is to reach an agreement to make repayment of your debt.
- Auto Debt - The law used to allow some people who
filed for Chapter 13 bankruptcy to escape a portion of their
auto loan debt. The practice was called a "cram-down"
in auto-lending parlance. With the provision of the 2005
bankruptcy law revision, filers who want to keep driving
their vehicles must repay the total amount owed if they
purchased their vehicles within the 30 months prior to filing.
- Credit Card Debt - First realize that your credit
cards need to be paid off. Call all of your credit card
companies. Inform all creditors of what is happening, whether
it be losing your job or whatever put you into deep credit
card debt. Inquire about a temporary reduction of your payments.
Ask about skipping a few payments and adding them on at
the end. Find out if you can have late fees dropped. Inquire
about cutting interest rates on all credit cards, even the
lower interest cards.
- Medical Debt - Before one can negotiate medical
bills, one must first understand what they have been billed
for. Review the medical bills carefully to check for any
mistakes. Even with insurance, the cost of billing errors
may come out of pocket in the form of higher insurance rates
and RX scripts. Unless a bill has been successful challenged
someone is responsible for paying the medical bill.
- Signature Loan Debt - Signature loans are typically
issued for personal use. These loans are usually unsecured
and their rates are based on the borrower’s credit
score and other factors. In reality, these are not much
different than a credit card. Signature loans for people
with bad credit will have higher interest rates. If you
have one of these signature loans, the repayment could take
up to 10-20 years, depending on amount of debt.
- Alimony And Child Support Debt - Typically alimony
is paid in periodic installments. A certain length of time
is established or until the death of one of the spouses
or the remarriage of the recipient. Alimony is taxable to
the recipient and deductible by the paying spouse under
the rules of the Internal Revenue Service. Child support
ends on the emancipation of a child. Alimony might continue
beyond the emancipation of the last child, and unlike child
support, it is not determined by a set of published Guidelines.
Judges have enormous discretion when awarding alimony. When
dealing with child support view it as a priority repayment.
Child support will not end at the child's 18th birthday,
it will end when repayment of the total amount is complete.
If you make an effort to keep up with debt repayment, chances
are you will not have to go through the court system.
- Wage Claim Debt - If you are an employer and terminate
an employee, that employee is entitled to be paid at the
time of termination. The final pay, including all unused
and accrued vacation time, must be paid within 24 hours
of termination, without offsets. If your employee quits,
you must pay the employee within 72 hours. If wages are
not paid as required, the employer is subject to a waiting
time penalty equal to your daily pay for each day delay
in making payment to the employee, up to a maximum of 30
days. This includes working as well as non-working days.
Wage claims are a priority debt, but there is room to lower
payments or extend payment plan to help with your other
debt. Just remember that the wage claim debt is growing
by the day and only full payment will take care of this
debt.
- Student Loan Debt - For most college students,
student loans are the only source of payment available.
If the student loans are not carefully planned, disaster
could be in the future for the borrower. Most students fail
to research the loans before signing on the dotted line.
If you should lose your job, or have an economic hardship,
never ignore your loan payments, but call SLSC (Student
Loan Servicing Center) and request a deferment form for
economic hardship, or unemployment. You cannot dismiss student
loans in bankruptcy proceedings. When the government is
involved, they will get what is owed to them. When it comes
to student loan repayment, the best bet is to look for the
lowest interest rates and make your payments.
- Administrative Debt - This is when you get a debt
administrator, usually a lawyer, to manage your money when
you can no longer afford to pay your debt. The administrator
considers your salary or wages against your expenses for
basic needs. He or she will allocate a certain amount of
your salary to you, and the rest will be distributed among
creditors for repayment. Administrative debt incurred by
the debtor, with court approval, after a bankruptcy filing
including necessary costs of preserving the estate, wages,
salaries, court costs, lawyers' fees, accountants' fees,
trustees' expenses, etc. This debt is a priority debt which
must have repayment to the administrator.
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