As a Denver Bankruptcy Lawyer, I frequently speak with stressed out clients for the first time who are unsure about which creditors to pay or when to pay them. Many times, during a free initial consultation about their debts, we discuss the following steps to determine which creditors should be paid and which creditors can wait on payment.
Determine Your “Disposable” Income
I know, it feels like that must be $0/month, right? In many cases, there is enough to pay something to creditors…even if paying all the monthly minimums is impossible. Before looking at your debts, write down your monthly income (take home). Then, write down your monthly expenses in the following order:
1. Start looking at your expenses by examining the things you need which are most critical: food, medicine, and utilities. Write down how much those things cost each month and label these “most important.”
2. Next, write down the cost of other necessities: housing costs, car payments & gas, health insurance. Include other payments you consider to be essential to your happiness TV? internet? Eating at restaurants? Yes, include entertainment in this section and label these items “important.”
3. Next write down all the minimum payments on the unsecured debts you own.
Congrats! You just took a big step toward financial security by creating a budget.
Using Your Budget to Make Smart Choices
Subtract your “most important” expenses from your monthly take home pay. Next, subtract the “important” expenses. Is there any money remaining? If not, you should call to make an appointment with a debt attorney right away to minimize the impact of your dire financial situation.
If there is money remaining to pay creditors, its best to prioritize among the types of debt you have. Generally, income tax debts and student loan debts should be prioritized over credit card debts, medical debts, or personal loans (general unsecured debts). My best advice is to consider a bankruptcy filing if you do not have enough money to pay off (principal and interest) your debts in less than 3 years. Frequently, its better to avoid paying general, unsecured creditors with money which would help more being allocated to other available financial tools (like a bankruptcy filing).
By getting a plan about which debts should be prioritized in place, you can avoid falling into a debt trap where you stay stressed out financially month after month in perpetuity. Still confused about what to do and want a professional opinion? I would be pleased to speak with you in a free, initial consultation about your debts. Feel free to use the “calendly” link in the bottom right of this screen, send me a Contact Form, or call to set up an appointment.