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Debt Prioritization and Your Budget

By: Michael Millington

If you have debt then you know that, eventually, you have to take care of it. Everyone knows that holding on to debt has no positive effect on your finances or your FICO score. Through debt management, debt can be made to work in your financial favor. Handling your debt responsibly can lead to an increase in your FICO score and a much easier time applying for credit in the future. One thing that confuses people with debt is how they should prioritize their debt payments. Whether becoming debt free or managing your debt, debt prioritization is very important when budgeting your income.


Debt Prioritization: Elimination or Management

The first thing you need to understand if you’re looking to prioritize your debts is whether you want to eliminate them or manage them. Your approach towards debt prioritization would vary greatly depending on your debt goals. While making sure your debt is dealt with is important on any scale, knowing how much of your income to allocate to the payment of certain bills can help to avoid problems that can arise from putting too much of your money into your debt payment plan.

Debt elimination is pretty self-explanatory. If you’re looking to achieve debt elimination then you would want to see all of your debt gone. Many who choose elimination generally want to have their debt eliminated as quickly as possible. To this end, pouring as much free money into your debt payments would be the fastest way to rid yourself of it once and for all. However, if you carry multiple debts then knowing what debts to focus on can help to say you a lot of money in the long run.

Debt management lends more toward controlling the debt you have instead of looking to eliminate it altogether. Instead of focusing on eradicating debt, debt management takes advantage of debt’s inherent nature to be paid off over time. Paying off your debts over time can result in a positive change in your FICO score and positive behavior for future creditors to base their decisions on. Even with this method of debt payment, prioritizing which debts receive the most money can still pay off financially.


Important Debts

Once you’re clear on the goal you have in dealing with your debts, you can accurately allot funds to your debt payments within your budget. It is important to know which debts need to be handled first and which debts can have less money dedicated to their monthly payments. One way to separate important debts from the rest of the pack is to see which debts have exorbitant interest fees attached to them. The higher the fees, the faster the debt should be paid off. With the amount of money that can be added due to interest rates, paying off these debts should be top priority.

For many people, the debts that fall into this category focus on credit cards. Most credit cards have fairly high interest rates that can result in a hefty amount of money being added on to your credit card bill. According to, the average American household pays over $6,000 in interest fees alone. With a new attitude implemented into our monthly budgeting, Americans can lower or possibly eliminate the need to pay these fees on a monthly basis.

While credit card debts may fall under the category of bills that need to be paid off as quickly as possible, there are other debts that need to be paid every month to avoid dire consequences. While all of your bills need to be paid on time, all the time, there are certain bills that, if not paid, can result in negative outcomes that are more severe than a credit card. Monthly obligations like your car payment or your mortgage should always be deemed as important and should always be paid on time.


Utilizing Your Budget

In order for these methods of debt prioritization to work, they have to be able to fit into your monthly budget comfortably. A functional budget might consist of your income and your monthly expenses. This kind of budget might have minimum payments towards monthly credit obligations. However, through minimum payments, neither prioritization goal can be successfully enforced. In order to experience a higher level of success with your debt, you must utilize your budget to its fullest potential.

If you’re looking to eliminate your debt, speed is essential to minimize the amount of time and funds you spend paying off the debt. The money you have left over in your personal funds (after your regular budget handles the main payments) should be reallocated towards paying off debts again. This way it will be like making two or three payments towards your credit debts. In doing so, you’ll be covering much more ground in your elimination goal and you won’t sacrifice so much money to interest payments.

If you’re looking to manage your debt, you don’t need to focus on hefty payments as much. The main focus will be to calculate proper payments to lessen the impact of interest fees while still paying more than the minimum amount necessary. In this instance, the greater payments go towards the higher priority debts (like credit cards). Paying down these debts without paying them off will allow for a payment to be logged, your FICO score to increase and your future interest payments to decrease.


Prioritizing your debts shows dedication and discipline when dealing with your finances. Having a budget, planning out your income and paying off your bills all go to prove your ability to handle your money responsibly. But if you have too much unsecured debt, it might seem like these endeavors are all for nothing. If you believe you can’t manage your money properly because of overwhelming amounts of debt, don’t hesitate to contact the professionals at Guardian Debt Relief to see if we can help you deal with your debt. Our certified and trained experts are ready and willing to answer your questions and find you a solution to your debt issues. Our consultation is free, but the information you’ll gain is priceless. Take the first step and contact Guardian Debt Relief today.

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