Many people who end up in debt don’t know how to prioritise debt. They are unsure which of their debts are the most important ones to pay. In this article, we will explain which types of debt are a priority and which are a non-priority and how people should approach both of these types of debt. Failure to keep up payments for priority debts could have serious consequences and it is important that you know the difference.
Make Sure You Pay the Right Debts First
- Find out how to prioritise debt – which of your debts are a priority and make sure you are on top of them
- Mortgage, rent and utility bills are often the most important debts
- Decide what to do about non-priority debts after you have dealt with priority debts
Problem debt can be one of the most stressful things to deal with. With all the pressures our finances are usually under, having the pressure of seemingly unaffordable debt on top can make life very difficult. It is important, if you are struggling with debt, to confront the situation and begin to work your way out of it. The good news is that there are many ways that debt can be dealt with and escaping from it is often not as difficult as people imagine.
The first stage in dealing with debt is getting control of the situation. Key to this is working out what you should pay towards each of your debts. It is crucial that you pay your most important debts first and that creditors for these debts do not pursue you. Your priority debts need to be dealt with effectively or you could face serious consequences. After these have been dealt with, you can make a plan as to how to deal with non-priority debts.
Knowing how to prioritise dedt – which is which and exactly how to deal with each type of debt can be complicated. Read on to find out more.
Get Free Advice to Help Prioritise Debt
If you are struggling with debt it is always a good idea to seek help. There are a number of free debt charities in the UK, such as StepChange, National Debtline and Christians Against Poverty which help people to deal with all kinds of debt problems. Whether you think your debt problem is big or small it is a good idea to ask them for advice. These charities provide free, impartial and professional debt advice and often support people the whole way through their recovery from debt.
Priority Debts
Debts can be classed as either a priority or a non-priority. Priority debts are debts for which the consequences of non-repayment will be quite serious. An obvious example is a mortgage. If you fail to keep up with your mortgage, you could lose your home. You should make sure that you are able to pay your priority debts and that your creditors for these debts are satisfied.
Priority debts are not necessarily the largest or those with the highest interest rates. It is the consequences for not paying them which matters the most. Here are some common examples of priority debts and an explanation of why they are classed as a priority:
| Priority Debt | Consequences for Non-Repayment |
|---|---|
| Mortgage or secured loan | If you fail to make payments towards your mortgage, your mortgage provider could repossess your home. Similarly, failing to pay off a loan which is secured against your home could lead you to lose your home. Arrears on either of these types of debt are also classed as a priority. |
| Rent | If you fail to pay your rent, your landlord could evict you from your home. As with mortgage and secured loan arrears, rent arrears are also classed as a priority debt. |
| Utility bills (gas and electricity) | Failing to pay your gas or electricity bill could result in your service being disconnected. Water bills are not classed as a priority debt as you cannot be cut off. |
| Hire purchase agreements or logbook loans | Failure to pay towards either of these could result in repossession or a County Court Judgement. |
| Court fines | Failing to pay court fines could result in bailiff action, money being taken from your wages or benefits, or even imprisonment. |
| Income tax, National Insurance and VAT | Failing to pay these debts could result in bailiff action, money being taken from your wages, bankruptcy or a county court judgement. |
| Council Tax | Failing to pay Council Tax could result in bailiff action, money being taken from your wages or benefits, the debt being secured against your property, bankruptcy or even imprisonment. |
| Child Maintenance | Failing to pay child maintenance could result in bailiff action, money being taken from your wages or benefits or even imprisonment |
| County Court Judgement (CCJ) or Decree (Scotland) | Failing to pay a CCJ or a decree could result in bailiff action, money being taken from your wages, money being taken from your bank account or a charging order. |
| TV license | You could be fined if you do not pay your TV license. |
| Telephone bill | Failure to pay your phone bill could result in disconnection or a CCJ. |
Non-Priority Debts
Failing to pay non-priority debts will not result in consequences as serious as those for priority debts. Non-priority debts are often forms of unsecured commercial credit. Examples are:
- Overdrafts
- Credit card bills
- Personal loans
- Payday loans
- Catalogue or store credit
- Money you owe to family or friends
- Water bills
While the consequences of not paying non-priority debts are not as serious as priority debts, there are still consequences. Your credit rating will be damaged if you fail to make the minimum payments towards these debts. On top of this, your creditors could pursue legal action against you in order to recover the debt. While this is the case, the threat is less serious and less immediate and that is why these debts are classed as a non-priority.
Debt Emergencies
Some debt situations can be classed as an emergency. If you are facing court action, bailiff action, your home is under threat or your debts are threatening you in another serious way, then you should seek advice straight away. The best place to go for advice is one of the free debt charities in the UK, such as StepChange, National Debtline or the Debt Advice Foundation.
How Should I Organise Debt Payments?
After you have worked out which of your debts are a priority and which aren’t, you should plan your payments. It is a good idea to seek advice at this stage. Many people will find that, while they are able to cover their priority debts, they are unable to make the correct payments towards their non-priority debts. Careful planning is often required at this stage and this is best done with the help of a free and professional charitable debt advisor. It is even more important to seek advice if you find that you are unable to make the necessary payments towards your priority debts.
Make Sure You Pay Your Priority Debts
The most important thing when you prioritise debt is to make sure that you are paying your priority debts off appropriately. You should be making at least the minimum monthly payment towards these debts. On top of this, if you are in arrears for any of them, you should make sure you pay off these arrears as well. In some cases, you may be able to adjust the amount you are paying towards your priority debts. If you have a mortgage, for example, you can speak to your mortgage provider to see if you can switch to a lower payment or to interest only payments. This will ease the burden and could free up money which you could pay towards non-priority debts.
See if You can Get Non-Priority Creditors to Stop Chasing You
In some cases it is possible to ask your creditors for non-priority debts to stop chasing you for them while you get to grips with your situation. This will often allow you time to work out how much money you need to allocate towards your priority debts. After this you will have a clearer idea about what to do about your non-priority debts. A debt advisor from a debt charity, such as Citizens Advice, will be able to advise you as to how you can go about doing this.
What Should I Do About Non-Priority Debts?
After you have worked out which of your debts are a priority and how much you need to pay towards them, you will need to decide what to do about your non-priority debts. Things can become complicated at this point and it is important that you seek advice if you are at all unsure about what to do.
As we already said, many people will find that, while they are able to pay their priority debts, they do not have enough money to make full payments towards their non-priority debts. It is important to be careful what you do at this point. There are a number of different approaches that you can take and it is important that you choose the right one. You may have heard of debt solutions, such as individual voluntary arrangements (IVAs), debt relief orders and debt management plans. These are all debt solutions which may work depending on a person’s situation. There are also a number of other possible debt solutions.
At this point, you need to choose the right debt solution for your situation and work towards becoming debt free with it. This is best done with the help of a free, impartial and professional charitable debt advisor. There are many considerations to make and various pitfalls to avoid. One example of a pitfall is not treating non-priority creditors fairly when it comes to making repayments.
Treat Non-Priority Creditors FairlyIt is normally best, if you cannot make full payments towards non-priority debts, to make sure that you pay a fair amount of your money to each of your creditors. If you are seen to have favoured certain creditors over others, this could harm your ability to pursue certain debt solutions, such as a debt relief order or bankruptcy. It is for reasons like this that it is a good idea to seek help with your debts.
What Can I Conclude about How to Prioritise Debt?Learning how to prioritise debt, which means knowing which of your debts are a priority and which aren’t and knowing more clearly what the consequences will be if you fail to make payments can bring a lot of clarity and an element of control to your situation. Make sure that you stay on top of debts which will have serious consequences for non-repayment.
Perhaps the most helpful information we can provide here is that it is a good idea to seek advice when you are trying to deal with debt. The dedicated debt charities in the UK, such as StepChange, National Debtline and Christians Against Poverty are able to offer completely free and highly professional advice on how you can deal with debt. These organisations have helped millions of people to turn their lives around and could help you to understand exactly how you should approach your debts.
