What debts should you pay off first?
“Making debt is not difficult, but debts are paying off a lot” – this is how a well-known saying could be transferred to the debt problem. Debt is a tiresome issue.This explains Oliver from Cologne and Michael from Dortmund’s desire to escape debt quickly and cleanly.
Which debts should the two young guys pay first?
Oliver and Michael, two fictitious models, present two basic debt reduction ideas.
Oliver is a relatively easy case: He is only struggling with a few accumulated consumer debts because he was temporarily unemployed. However, due to his new employment relationship, he has sufficient funds at his disposal again. In addition, his debt has not yet reached a threatening extent.
Michael, on the other hand, is a real problem child. Although he has fallen into debt through no fault of his own, he is permanently at the mercy of a financial bottleneck and simply cannot treat every liability equally. For him, it is important to avert life-threatening debts.
The strategy for easy cases:
Payments depending on payment deadlines
If, as with Oliver, sufficient funds are available and there are no life-threatening or otherwise priority debts, debts may be treated equally.In this instance, payments are made according to existing payment deadlines or those negotiated with creditors.
Punctual payments reduce disagreements with creditors and financial losses from interest profits and Co. Oliver must still pay off his debts in an organized manner and first determine if he is efficient.
The basis: A good overview of all liabilities and income
It doesn’t help.Oliver has to get a good overview of all liabilities, deadlines, income and expenses. If this overview gives him the green light, the preparation of an individual financial plan is effective. Here Oliver notes exactly when which payment is to be made. More air in debt reduction can also be gained by implementing strategies that lead to savings.
Oliver decides to keep a budget book: So he can finally determine where one or the other euro seeps away in the budget management. He also checks whether, if the financial situation continues to improve, he may be able to repay debts in one go in order to save interest. In this case, however, compensation should not incur any new or higher costs. If capital that is not needed in the short term remains, a flexible and safe investment of the same makes sense. Ideally, the capital still throws off a few more interest, but is also quickly available again for the next payment.
The role of individual order and control concepts
If debtors like Oliver face the challenge of serving all debts at the same time, the establishment of an individual control system is essential. It must take into account all payment terms. In addition, a regular check should be carried out to see whether the financial burdens are still to be borne in full. If this is no longer the case over time, quick action is required. Creditors must be contacted in order to develop other solutions and, if necessary, prevent the emergence of life-threatening debt. If Oliver burdened himself too much – for example, by assuring too high installment payments – there would be a new risk of debt.
The strategy for serious cases: The most important thing first
The case is very different for Michael than with Oliver: His debts have become almost uncontrollable. He has not opened many letters that could cause further misfortune. For him, it is primarily important to give up the ostrich attitude. He must avert immediate threats, get an overview of all his debts and seek professional help. Existential debts are recognizable by its consequences. Rental debts, for example, can lead to the loss of housing and, in the worst case, lead to homelessness. In extreme emergencies, debts of this kind must therefore be repaid or averted first.
Life-threatening types of debt
In addition to rental debts, energy debts, fines and fines are types of debt that threaten their livelihood. Supplements the list of life-threatening debts on its website with the complex of account attachment.
All types of debt mentioned mean that a normal life is hardly possible anymore. Energy debts can lead to the blocking of the energy supply and thus to a limited habitable apartment. Unpaid fines and fines can lead to imprisonment, so that freedom and thus the ability to work are endangered. A blocked account creates new debts and denies the indebted person the way to the last reserves.
the worst consequences of life-threatening debt do not necessarily have to occur. However, Michael must take action in any case. The Social Welfare Office can help with rental and energy arrears, the attachment protection account can prevent entire account attaches, fines can be paid or handled in installments, and proof of insolvency prevents compulsory detention.
Creditors can foreclose to get their money back. . Serious debtor advice helps to identify the corresponding dangers and options for action.
Contact with creditors and development of individual solutions
Michael must first and foremost preserve his livelihood in the form of housing, energy, nutrition and freedom (= worker).
He shouldn’t neglect other debts that won’t immediately harm him.
Michael must contact creditors early.
Debt counseling can arrange installment payments and other solutions.
Prioritize late and high-interest debts.
Avoid lawsuits and debt.
Creditors can foreclose to get their money back
Conclusion: Often only going to professional debt counseling helps
Many legal aspects play a role in debt.Borrowers struggle to prioritize obligations and bargain with creditors. . Debtors often overestimate their own performance, do not want to admit problems and act too late, resulting in serious consequences. Thus, seek dependable debt counseling services early. . . These experts currently assist Michael.
Many debt deadlines require debt counseling.
Avoid dubious debtor consultations, which increase debt and cost a lot.