Which bills should you pay off first?

Aug 1, 2012, 8:41 a.m.

Debt laden seniors are better off taking baby steps to begin work on this problem rather than going whole hog into deeper debt trying to pay off everything they owe at once.

Debt laden seniors are better off taking baby steps to begin work on this problem rather than going whole hog into deeper debt trying to pay off everything they owe at once. There is some rationale for this; even if you believe you have adequate assents against which to borrow, it is worthwhile to think twice before acting about which debt to pay off first, and how to pay off your debt load in full.

Immediately, stop adding to your debts and cut spending. Next, pay off high interest and secured debt bills first. There are several options available to older persons who have some steep debt and limited income levels.

Easy fixes

Pay more than the minimum amount due; try to pay double.
Look for community assistance programs available to older persons in need of financial assistance -- free up income by getting help from food banks, state and federal agencies, and energy assistance organizations.
Find out if you are eligible for food stamps, supplemental income assistance or Medicare.
Transfer high interest balances to your lower interest credit cards when possible.

Medium fixes

Try to renegotiate terms with creditors; even your hint of a potential bankruptcy filing can work wonders to get rate reductions from creditors.
Borrow against life insurance -- this may help but you will need to repay the loan.
Use savings accounts to pay down debt. This is a trade-off; you reduce high interest debt with money that would earn far less in a savings account. Be careful to retain an emergency fund.

Read top debt management ideas for struggling seniors

Hard fixes

Family and friends -- this can be embarrassing and difficult but may be of help if your family and friends can afford to help you.
Home equity loan -- while often one of the first ideas suggested, this is not a great solution. Even though you take unsecured debt at high interest and replace it with a big loan, albeit at low interest, you still are putting up a security interest in your home; you could lose your assets, your home.
Borrow against your 401K -- this is not necessarily a great idea either. There are stipulations for such loans, including immediate repayment if you lose or quit your job, or if the company goes out of business.
Bankruptcy -- the big "B" feared by some but welcomed by many. You clear all debts and get a fresh new start; your credit record and reputation may be severely harmed.

The purpose of this article is purely to provide information; it should not be considered as qualified financial advice. If you are at all uncertain about how to handle your debt load, you should seek out the consul of a bankruptcy lawyer or financial advisor before acting.

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