Which debts to pay off first
When you're sorting out how to pay back your debts, you'll need to identify the priority debts. You can then use your available money to settle the most important debts first.
The most important debts aren't necessarily the biggest ones. Priority debts are ones where serious action can be taken against you if you don't pay what you owe.
Some examples of priority debts, and the consequences of not dealing with them, are listed below.
Mortgages and secured loans
If you don't keep up with mortgage payments and payments on loans secured on your house, the mortgage lender can take legal action to take possession of your house and sell it.
If you fall behind with your rent, your landlord can take possession action in the county court to evict you (and you will still owe the rent arrears).
Tax, National Insurance and VAT
It's important to pay tax. Not paying tax could lead to you being made bankrupt. A tax debt alone is not a sufficient reason for a prison term, but cases of serious fraud could result in criminal proceedings.
Tax credits overpayments
If you've been overpaid, the Tax Credit Office usually ask you to pay back the extra money. But if that means you are not able to meet essential living expenses such as rent, gas or electricity bills, please call them and they can discuss your options.
Tell your council as soon as you think you're going to have a problem paying your bill. They may be able to reduce what you have to pay. For example, you might qualify for a discount you didn't know about, or for Council Tax Benefit.
Gas and electricity companies can disconnect their services to your home if you don't pay their bills. Even a phone bill can be a priority if you need the phone to help you earn your living.
You need to keep paying your ongoing water bills but any water arrears you have can be included with your non-priority' debts (see below).
Hire purchase (HP) debt
Any debt should be seen as a priority if what you're buying on credit (or 'HP') is essential - such as buying a car you need for getting to work.
Other priority debts
A court could use bailiffs to come into your home and take your goods away if any of the following debts are unpaid:
- Business Rates
- magistrates court fines
- maintenance and child support payments
Your goods would be sold to pay what's owed. If you still owe money after this, it's possible you might be sent to prison.
Non-priority or credit debts
You may not lose your home or go to prison for not paying 'non-priority' or credit debts, but you can still be taken to county court and ordered to pay what you owe - often with extra costs on top.
If you still don't pay after you've been ordered to do so, there are a range of county court enforcement options your creditors can try to take against you.
It is very important that you get free, independent advice on your options for dealing with your non-priority debts.
Examples of non-priority debts include:
- credit card or store card arrears
- catalogue debts
- water rates arrears
- bank overdrafts and loans
- personal loans with finance companies
- loan shark loans
- money borrowed from friends or family
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