What are Low Priority Debts?

Financial management is a key to maintaining good financial health. To manage your finances, you need to understand what are high priority debts and what are low priority debts. Learn which debts are low priority. 

WHAT IS LOW PRIORITY DEBT?

The following debt is considered lower priority. If you are in debt up to your eyeballs, you can ignore these types of debt:

UNSECURED DEBT

Low priority debt includes credit that is borrowed without collateral. This includes credit card debt and medical debt, such as doctor and hospital bills. These types of debt don’t require collateral such as a house or car, and are considered to be unsecured debt.

Tip! Creditors have little recourse in the short term if you don’t pay your bill. Consider credit counseling, debt consolidation, or even debt settlement.

LOANS WITH HOUSEHOLD ITEMS AS COLLATERAL

This type of debt is also low priority. A creditor may ask you to use some of your household items as insurance on a loan. However, the odds of a creditor taking your household items in exchange for monetary compensation are rare. Most household items have little resale value, and creditors would need to obtain a court order to seize them. The time is not worth the expense.

Tip! Don’t feel threatened by a debt collector even if they inform you that they will sue in court. Your collateral may even be exempt from seizure. Discuss your options with a debt relief provider. 

WHAT ABOUT STUDENT LOANS?

Student loans are in a league of their own. They are not tied to collateral but cannot be discharged - even in bankruptcy. Unless you qualify for student loan forgiveness, you must pay them. Student loans fall into two categories:

FEDERAL STUDENT LOANS

Federal student loans are issued by the government. These should be paid before your low-priority debts. Since you acquired these loans with government funding, the law allows the government to pursue collection from you. These collection efforts include paycheck garnishment, tax refunds and liens, and reduction in Social Security benefits. You don’t want to go there. You work hard for your money.

Tip! You may qualify for income-based student loan repayments, student loan deferment, student loan refinancing, and student loan consolidation. You may be able to get the debt canceled in a few situations. Contact your loan provider for more information.

PRIVATE STUDENT LOANS

Private student loans are like other types of unsecured debt and should be paid after your high priority debt and your government student loans - but before your low priority debt.

Tip! Refinancing your student loan can reduce your monthly payment and interest owed. 

When you realize you can’t pay all your debts and expenses, you need to decide which ones to pay first. If you are not sure where you stand on debt, try this free debt tool to help you understand your financial situation. Everyone’s finances are unique to them. There is no cookie-cutter resolution on how to achieve financial freedom. If you find yourself stuck on what to do, use these articles to guide you, and seek advice from a debt solution provider.

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