If you have fallen into debt, then chances are you will be in debt for more than one reason and will have numerous debts to pay to numerous creditors. If this is indeed the case, then just as important as paying off your debts is making sure you pay them off in the right order, as leaving certain debts to gather dust whilst you pay off others could result in further legal action, your assets being repossessed and an ever increasing downward spiral into bankruptcy and depression. Here, we’ll help you to understand which debts you should be prioritising.
As the name suggests, a priority debt is any debt that, if left unpaid, could result in serious consequences. These consequences will depend on the size of the debt and your creditors, but could include everything from home repossession, your gas and electricity being cut off, bailiffs being sent to take your belongings from you and even prison! Below, we’ll be taking you through the most common priority debts and will explain how you should be handling them.
Perhaps the most important debts you should think about paying off ASAP are mortgage arrears, as, if you don’t pay them, you could end up losing your home to your mortgage lenders if the loan agreement on your home is a secured loan. If it is an unsecured loan, the lender will have no legal, financial claim on your property, but the vast majority of mortgages are secured. It should be noted that your mortgage lender will need to first attempt sort the issue with you and then file a court action against you before you can be legally evicted, and even if it goes to court there are still options available to you. It’s important with mortgage arrears to open a dialogue with your lender and keep them happy. If you have started falling behind on your monthly payments, consider taking out a further loan, taking extra hours at work or selling some unnecessary bits and bobs so that you can get back on track before your lender decides to take action. There might also be tax benefits you might be able to claim and the DWP might also be able to offer assistance if you meet certain criteria, so never be afraid to ask!
A second mortgage or secondary secured loan will be just as important as a primary mortgage, as, even if you are keeping on top of your regular mortgage payments, if you fall behind on your second mortgage payments you could still lose your home!
Whether you own your home or not, it’s still a home, and the last thing anyone wants is to find themselves thrown out on the street (or being forced to move back in with their parents). As with mortgage arrears, if you fall behind on your rent arrears you could end up being evicted, and there is actually less you can do legally to stop it happening because you don’t technically own the property. Your right to remain in your rented home will depend on the tenancy agreement you have, so make sure you read through your agreement thoroughly before taking any further action. As with mortgage arrears, your landlord will need to file a court order against you, and even then you might be able to stay, depending on what the court decides. Note that you will never be evicted on the date of a court hearing, you will always be given adequate time to get your affairs in order, but if you can, always pay off your rent arrears before any other debts, even if it means putting off paying other debts, as having a roof over your head is surely more important than anything else.
Council tax is something a lot of UK citizens tend to forget about, often at their peril. The amount you pay will depend on the value of your home and how many adults live there. This will give you a tax band from A to H, which you must pay monthly. Failure to pay off council tax debts could lead to the council sending bailiffs to claim your possessions to the value of the debt, deductions from your wages and even prison time in extreme circumstances. Note that some council tax discounts are available is you are the sole adult occupant of the house or living with a disability.
Gas and Electricity
Obviously, whilst this is not quite as important as remaining in your home or staying out of prison (see above), keeping the gas and electric on is something that will significantly improve your quality of life. As such, you’ll want to keep on top of your utility bills. Most gas and electricity companies will cut off your supply entirely after just a few weeks if they go unpaid, though they must contact you first by law to first offer you payment options and then let you know they will be doing so if an arrangement can’t be reached. If you have fallen in arrears you can arrange a payment plan that you should sort immediately, but in order to avoid things getting that far, we recommend being more careful with how you use your utilities or perhaps changing your payment terms (you can often pay weekly, bi-weekly or monthly). Note that if you are considered vulnerable under the Energy UK safety net, you might be able to avoid disconnection. This will apply if you are elderly, of ill health, disabled or have fallen into severe financial difficulties.
Magistrates’ Court Fines
Depending on the severity of your court fines, the court could use bailiffs, deduct the debt from your wages or benefits or even send you to prison in extreme circumstances. These fines are usually accrued through minor offences such as speeding tickets or not having a TV licence, and they are generally quite small, so we recommend paying these ASAP, as, whilst they might seem minor, they can still lead to serious consequences. In the case of a TV license, especially, it’s an easy fix. Simply pay your fine and buy a license, then send a copy of that license to the court so they don’t continue to charge you. Also, in this case, always plead guilty, as the court fees you’ll build up otherwise are simply not worth it!
If you are separated from your partner and you have a child together, you might have child maintenance fees to pay. They first thing you’ll ant to do if you feel you can no longer afford to pay the amount required is to plead with the courts and explain that you can’t afford what is being asked of you. This could lead to a reduction in payments and will delay a court hearing that could result in bailiffs, wage deductions or prison! If your child maintenance fees have been arranged by the Child Support Agency of the Child Maintenance Service, meanwhile, the consequences can be even more severe. In either case, make sure you contact either the courts, the CSA or the CMS as soon as humanely possible if you know you won’t be able to pay, as you should be able to arrange a repayment plan with them directly. Also let them know if your circumstances have changed as and when they do. Also, remember that ultimately, this will also affect the welfare of your child, not just yourself, so always take that into account.
Budgeting Loans and Benefits Overpayments
If you are on benefits of any kind, you might have, at some point, taken out a budgeting loan, short-term advance or budgeting advance for some short-term help. Repayments will, of course, be deducted from your benefits first, but this means you could be left with less than enough money to cover your other costs. If you are living on benefits, a time might also come when the DWP tell you that you have been overpaid and they require the overpayment back. If you can’t afford this overpayment or it will cause you significant hardship, or even if you simply don’t agree with it, you might be able to plead your case. But be warned, the laws on overpayment are rather complex.
Tax Credit Overpayments
As above, if you are told you’ve been overpaid tax credit, but disagree with it (for example, if you feel it is a mistake) then you should be able to appeal to the HMRC and, if the circumstances call for it, they might write off the debt or at least part of it.
Income Tax and National Insurance
This is perhaps a lower priority debt than many listed above, but it’s still definitely a priority to be taken seriously. The HMRC might use bailiffs to take the debt back or even declare you bankrupt if you don’t pay your arrears. Note that if you are self-employed, this could be quite a complicated situation so you might want to sire a professional to help you sort it out. If you can’t afford to hire anyone, services such as TaxAid exist that offer free advice.
Hire Purchase or Conditional Sale
If you have purchased goods using a credit agreement, then failure to pay any outstanding arrears could result in your purchases being taken from you to be sold to pay off your debt. Legally, in most cases when you take out a credit agreement, you actually own the goods outright, but owe the creditor money. Also note that, until you have paid back your arrears, you can’t sell on the goods without the lender’s express permission and that, if you have paid off less than a third of your debt, the lender might be able to repossess the goods without even going to the court. Still, depending on how much you need the goods in question, this debt shouldn’t be treated as a higher priority than any of the debts listed above.
More often than not, prioritising your debts is simply a case of good organisation and common sense. Also, never feel ashamed to ask for help and remember there are numerous resources available to you both online and offline.