Which are the Accounts to be prioritised for Repayment when you have had a Bad Debt?


Before we begin to answer the question on how to prioritise your bad debt, you need to understand first what a bad debt is.

A debt which is not collectable from the one who has borrowed it is referred to as bad debt. Bad debt occurs when the debtor, the one who has borrowed, is in the mode of getting into bankruptcy. The situation can also be that for the creditor (the lender), the cost of collecting the debt exceeds the amount they are supposed to receive. A bad debt is termed or declared as a bad debt only after all attempts to collect it has been futile. Once declared as a bad debt, it will be written off as an expense in the books of accounts of the creditor.

When you think of which of the credits needs to be repaid first, the appropriate answer will be all credit accounts are equally important.  One practical method of paying off your due debts is pay off one account at a time.

You can choose or prioritise in a few different ways:

  • Pay off the loan which carries the most interest: You may begin with the debt account which charged with the highest interest rate. This will help you to save the cost of this debt. The more you delay this debt, the more interest will be. It would be good to pay maximum possible into this account.  You can dedicate the as much possible towards this account. Continue to pay a small amount into to the other loan accounts. Once you are done with repaying this account, you can switch to repaying the account which carries the next highest interest rate.
  • Pay off the account with the least due: Another option to choose is to pay off that loan account which has the least balance due. The time taken for this will be less than the time which it would take to clear a loan with a higher balance. Above all, it adds to the relief that on-loan account is closed. Once this account is closed, you may choose the next account which has the higher balance, and the same time keeps paying minimum amounts to the other loan accounts.
  • Start by paying your credit card dues: Option three is to pay the dues in your credit cards first. Once that is cleared you can opt to pay between the other loan accounts. If you have more than one such account, you can pay minimum amounts into the other accounts. Then continue paying off the other accounts sequentially.

It is completely your choice to choose any of these options. The main idea is to clear the bad debts which have occurred over the period.

One point you need to keep in mind is, do not start repaying into all the outstanding accounts together. This may end up all the finance companies hounding on you for repayment.  Choose the appropriate option and then talk the company to get the best repayment deal in writing. You can negotiate with the finance companies and reach the best deal.

Your only aim here should be getting back slowly and steadily to the desired credit score of 800 plus, which will ensure your financial fitness. Achieve your goal of being financially healthy.

Updated: December 5, 2016 — 6:56 pm

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