How to Prioritize Family Debt

Jason asks how debt to family should be prioritized in the debt snowball. Dave explains.

QUESTION: Jason asks how debt to family should be prioritized in the debt snowball. Dave explains.

ANSWER: No. If there’s no big pressure, no breakdown in the family—you didn’t borrow money from your grandmother, so now she’s having to eat dog food because she gave you her last dime, nothing like that—then you just treat it like any other debt in the debt snowball. The debt snowball’s not about interest rate. The debt snowball’s not about risk, and it’s not about default. It’s about what is the lowest balance? Pay that off next. The only time I make an exception for that is when we’re dealing with something like the IRS, and you put them at the top, and you knock them out as fast as you can.

You need to go ahead and just put family in line. Again, if somebody’s got a problem, there’s some kind of other pressure and your dad’s going to lose his home because you don’t pay the loan back where you borrowed money from your dad, then you’ve got to reprioritize it. But otherwise, if there’s not, then you don’t. “Well, I don’t ever have to pay it back.” If you don’t ever have to pay it back, then you need to not have a debt. It’s not a debt if you don’t ever have to pay it back, but if you’ve got to pay it back, it needs to be in the debt snowball with the exception of extreme situations.