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What Order to Pay Off Your Debts

There are many articles about paying off debts and most of them will explain that you should pay off your most expensive debts first. This will be the most cost effective way to do things. Others may say that it is better to pay off the smallest ones first because you then start to see the number of debts disappearing and it can be very encouraging. However, these all assume that the urgency to pay the debts is the same and this may not be the case.

When you are looking at your debts in order to think about which to pay back first it is worth considering which is the most crucial. This means which of them will cause the most problems if it is not paid off. Some debts will be considered to be more important than others and it is important to understand how to prioritise which to pay first, particularly if you have a limited income source to repay them with.

For example, you may have had a court summons for not paying a debt, so make sure that you deal with that one as soon as possible. This also applies if you are under threat of eviction for not paying mortgage or rental payments. If the bailiffs are threatening you could also be a reason for prioritising a debt. You should also consider whether you are likely to have a utility switched off through not paying. If you do not have the money to pay off the whole debt then try to negotiate. Work out how much you could afford to pay and try to arrange instalments to repay the debt. If you can show that you are willing to start repaying and that you have a realistic idea of how you can do this, then you should find that you will be able to organise something to keep you and them happy.

The next debts to look at are those which cover payments for essential items. Things like your rent, mortgage or loans secured against your home as not paying could lead to you being evicted and you ending up homeless. You may have court fines, which if you do not pay could incur steep penalties. Taxes such as National Insurance, VAT or Income Tax will have huge fines and big consequences if not and on time and so it is wise to make sure that these take priority. Council tax is also one that could end up causing you a lot of problems if it does not get paid. Utility bills, such as gas and electricity are important as without paying them you will cut off and this would make life very uncomfortable. TV licence is also important, if you want to continue watching the television. If you have hire purchase agreements for essential items such as a fridge or bed then you will want to make sure that you get those sorted out quickly. Lastly if you have child maintenance to pay then you need to prioritise this as not only will it be important to your child’s welfare that they get the money, but you could have fines imposed if you do not make the required payments.

Once you have addressed any of these then you have lower priority debts such as payday loans, credit cards, store cards and any other store or catalogue dents. Overdrafts, loans, and money borrowed from friends and family. Although you could go to court for not paying some of these, you will not suffer so badly as a result of these. You water bills also come into this category, but you should pay as much as you can towards them even if you are just paying for current use or else what you owe will just keep rising.

To choose between these lower priority debts, you should pay the most expensive first but take into accounts any charges for repaying early or overpaying. Make sure that you leave enough money to pay minimum requirements on other debts and to pay for your essentials.

If you are still confused then you can get free debt help. Even telling someone about the problem can help to clarify things in your head and your advisor should be able to help you to work out how much to pay back and which debts to target first. The quicker you start to deal with it the better as otherwise the debts can keep growing and the problem will be even more difficult to fix. Deciding that you want to get out of debt is a great decision to make and telling someone about it can be hard. However, getting the help you need can be a big relief and you will be able to start working on sorting out your problems and no longer having to worry about debts again.

How can you Avoid or Get out of Negative Equity?

Negative Equity is a situation when the home that you are buying using a mortgage is worth less than the value of the mortgage. This happens when your home drops in value after you have bought it as a lender would never lend you more money than a property is worth. This can create problems if you want to move home, as you will not have enough money, after selling, to repay what you owe on the mortgage. There are ways though that you can get out of it and ways that you can prevent it.
If you want to avoid negative equity then the best way is to make sure that you borrow a lot less money to pay for your home than it is valued at. This means that you will need to save up for a really large deposit. Most lenders will require between five and ten percent of the house value as the deposit. However, the more that you can put towards it, the less chance you have of being in negative equity. This is because the amount you borrow I a lower percentage of the value of the house, so even if the house goes down in value you will be less likely to find that the value is lower than the loan value.

Of course, you can also avoid it by buying a property which will not go down in value, but this is much more difficult to predict. If the housing market falls as a whole, although some individual properties will not lose value, it is very difficult to predict which these will be. There is no magic formula, it just depends on demand for those specific properties at that point in time. There are other things though, not just market changes which can make the price of a home fall. These can be threat or actual flood, subsidence or anything that is likely to put your home at risk. There could be specific incidences happening in the area, perhaps crime, development, an increase in reputation of a local school or things like that which could change how much homes in an area could be felt to be worth. A certain amount of research could help to protect against some of these things, but they are difficult to control. One thing that you can control though is the condition of your home. If you make sure that you keep it in good condition, looking after the structure of the home as well as keeping it looking good that will help to protect against a fall in price. A home that falls into disrepair will certainly be worth less than one that is well maintained.

Once you are in negative equity, it may feel that you have no choice but to wait until house prices rise again in order to get out again. You may feel trapped, that you will not be able to move house and this could cause other problems, perhaps if you wish to relocate with work or to be nearer to family members. However, there are solutions.

If you want to move, then you could save up for a deposit. Then you can use that money to offset the difference between the house price and what is owed on the mortgage. How much you need will depend on the amount of negative equity and how much a lender is willing to accept towards the down payment on another home, assuming that you want to buy another rather than move to rental. If you do not want to move, but just want the security of not being in negative equity then your lender may allow you to make some overpayments on your mortgage to reduce what you owe and therefore get out of negative equity.

The problem can be more difficult if it is caused by floods, subsidence or other similar problems. Not only may your home be worth less than it was, even if you wanted to sell it, you may struggle and your insurance is likely to go up as a result. However, if you do want to move then you may be able to rent your property out to someone and then get a rental income from it. This could help to cover the mortgage and increased insurance costs and will allow you to be able to afford to live elsewhere.

If the home has fallen into disrepair, then you may be able to organise some repairs and cleaning in order to get it back to a good condition and this could be enough to be able to bring the value back up again.

If the area has fallen out of favour, then it is harder to increase the price. Even if you make improvements, you may find that you still cannot increase the value as the area is just not desirable. You could just wait and hope that things improve or you could consider renting it out, as mentioned above, in order to give you the income and freedom to be able to move.

Is it Good to take out a Joint Loan?

There are many people that choose to take out a joint loan. This is often done with a mortgage but can also be done with a bank account that has an overdraft facility and personal loans. These are often taken out by married couples, but partners and sometimes even friends or siblings may consider them too. There are advantages and disadvantages.

If you are having trouble borrowing money, or enough money, then having a second name on the loan could help. This is particularly true with a mortgage when the amount that needs to be borrowed is usually very big and so having two named earners on the loan can help the lenders to be confident in your ability to repay and more likely to lend you more money. This can be really handy if you can share the responsibility of the repayments and share the items the loan is taken out to pay for. So if you do buy a house, you can share the cost of the repayments and the cost of the loan. The lender will take both your earnings into account when looking at how much to lend and whether you can afford the repayments and so you are likely to be able to borrow more. This can be good as you can get a bigger property, but there is also a danger in borrowing a higher amount of money as it will be more expensive to make the repayments and you will have more overall debt. For some people it is the only way that they can afford even the most basic home though. With other loans it can also be useful in helping you to borrow more money. If one person does not have a good credit record, then pairing up could mean that they will be able to have access to borrowing money which they may not have had otherwise. This is good for them, but may not be so good for the other person, particularly if the one with the bad credit record does not look after the available funds or borrows more than the couple can afford to repay and then they both end up with a bad credit record.

It is worth noting though that each party is responsible for the whole loan. So if one cannot pay their share, the other will have to pay it all. You are not responsible for only half of it. So if you have a joint overdraft, one person borrows a lot on it and then you split up, you will still be responsible for it. So they could effectively steal money from you. Any bad debts will go on both of your credit records as well, even if it was them that spent the money. The only way to prevent this happening with an overdraft on a joint account is to have it set up so that both account holders have to sign to agree to each transaction. This can be rather cumbersome but it may help to protect both parties against the other making withdrawals that they do not agree on.

It is therefore something that you need to take a lot of time thinking about. Obviously, when you are married to someone or in a long term relationship, you may assume that you will always be together and therefore there will be no problem with having joint accounts. However, it is not easy to predict the future and you could find that this leads to trouble. It could therefore be good to think about how much trust there is between you and your partner as well as how good they are with money. Do you think they would be likely to spend out on an overdraft and cause financial problems or to not pay back their share of a loan? Think about what might happen if you had to take full responsibility for repaying a joint debt and whether it was something that you could cope with on your own. It can be a difficult subject to talk to them about, but if you feel it would be better to not share responsibility for debts then take out separate loans. This could be hard with a mortgage, but with a personal loan it is likely to be simple enough and you could suggest having credit cards instead of an overdraft on a joint account. You may even prefer to keep all accounts separate anyway.

It is worth taking some time to consider the consequences of having joint accounts. Although it can be more convenient and may mean that you can borrow more money, there is an element of risk. You will then be responsible for any debts accrued in joint names, even if you do not spend the money yourself or agree to the borrowing. It is therefore something that you should make sure that you do not sign up to without a lot of thought.