Which Debts to Pay First When Money is Tight

Reader Question: "My husband recently lost his job, and we have limited funds to hold us over until he finds work again. We are wondering which debts we should pay first, and which ones could be put 'on hold' for a while. Thanks."

I'm sorry to hear about your husband losing his job. In a perfect world we would always be able to pay our debts in full, and we would never have to prioritize what we pay and when. But, as you can attest, we obviously don't live in such a world. Life throws us a few curve balls from time to time, and it often involves money.

So, which debts should you pay first? Let me start by saying I'm not a financial advisor. Just a finance writer. So you might want to consider getting some non-profit debt counseling. Among other things, a counselor can tell you which debts to pay first, how to budget your money, etc.

With all of that being said, here's what most experts recommend for paying debts with limited resources.

1. Housing is an essential item that should be placed at the top of your list. Having a roof over your head is clearly one of the most important items. So your rent or mortgage payments should be given top priority. You should continue to pay these debts first to ensure you have a place to live. This is especially important if you own a home -- you don't want to sacrifice your biggest asset by having it foreclosed upon.

2. Secured loans are those that are backed by some form of collateral. Your mortgage loan, for example, is a secured loan -- if you don't pay it you'll lose your house. These types of loans should be put at the top of your priority list. If a creditor could take you to court for not paying your debt, and eventually seize property or other assets, you need to pay those debts first. Unsecured loans, on the other hand, can be given less priority.

3. Utilities are also important. After all, what good is a house if you don't have electricity. If you live in a harsh environment where heating / cooling are necessary, this even becomes a safety issue. So this is another debt you should pay first.

4. Car payments are another high-priority item, especially if you need your car to get to and from work (or in your husband's case, to find work). You can't pay your debts without income, and you can't secure or maintain your income without the required transportation.

Getting Help With Your Debt

I've touched on this earlier, but it bears repeating. There are several non-profit organizations that can help you manage your debt, decide which ones to pay first, and much more. "Non-profit" means that these groups offer free and low-cost counseling services. There are several groups worth looking into. Here are two that I recommend:

• National Foundation for Credit Counseling (NFCC.org)
• Consumer Credit Counseling Services (CreditCounseling.org)

I hope this helps you decide which debts to pay first when money is tight, and I hope you guys get back on your feet quickly. Good luck and best wishes.