The 4 Types of Debt Obligations
When there isn't enough money to go around at the end of each month, you'll have to make some pretty tough decisions regarding what to pay. Here we discuss four common types of debt and how to decide what to pay.
Your mortgage payments
You might think this is a no-brainer, and it certainly should be a high priority for most people. However, there are some cases where you may not want to make your mortgage payments. For example, let's assume that you owe more on your home than it is worth. It might make sense to save your money for a new residence if you know you are going to be facing foreclosure anyway in the near future.
Your car payments
Likewise, deciding what to do with your car often comes down to how much you owe versus how much the car is worth. You can continue to make payments, by all means, if you wish to keep the vehicle.
Keep in mind, however, that allowing the vehicle to be repossessed may not be the end of the story. This is something that many consumers are not aware of. If the dealer takes the car, it will most likely sell it at a wholesale value and leave you to pay the balance of the loan! If you know you're going to surrender the car, you may be able to get more money out of it by selling yourself.
Alimony and child support payments
This is something you usually don't want to mess with. Besides the moral obligations of taking care of your children, many states have gotten tough on those they believe to be deadbeat parents. You need to do your absolute best to keep up with these payments or you might even face jail time in some cases.
Good old Uncle Sam
Whether you like it or not, taxes continue to take a big bite out of your paychecks and don't show any sign of slowing down. You will need to keep up with these payments as much as possible because the interest and penalties can add up quickly. Bankruptcy can get rid of some of these payments (particularly when the taxes are more than three years old), but you most likely have to pay your current taxes and those for the last three years.
Your mortgage payments
You might think this is a no-brainer, and it certainly should be a high priority for most people. However, there are some cases where you may not want to make your mortgage payments. For example, let's assume that you owe more on your home than it is worth. It might make sense to save your money for a new residence if you know you are going to be facing foreclosure anyway in the near future.
Your car payments
Likewise, deciding what to do with your car often comes down to how much you owe versus how much the car is worth. You can continue to make payments, by all means, if you wish to keep the vehicle.
Keep in mind, however, that allowing the vehicle to be repossessed may not be the end of the story. This is something that many consumers are not aware of. If the dealer takes the car, it will most likely sell it at a wholesale value and leave you to pay the balance of the loan! If you know you're going to surrender the car, you may be able to get more money out of it by selling yourself.
Alimony and child support payments
This is something you usually don't want to mess with. Besides the moral obligations of taking care of your children, many states have gotten tough on those they believe to be deadbeat parents. You need to do your absolute best to keep up with these payments or you might even face jail time in some cases.
Good old Uncle Sam
Whether you like it or not, taxes continue to take a big bite out of your paychecks and don't show any sign of slowing down. You will need to keep up with these payments as much as possible because the interest and penalties can add up quickly. Bankruptcy can get rid of some of these payments (particularly when the taxes are more than three years old), but you most likely have to pay your current taxes and those for the last three years.
