How to prioritise your debts

Trying to get out of debt can feel like a helpless task. See our handy tips on how to prioritse your debts.

How to Prioritise Your Debts When Money Is Tight

When you owe money to several different creditors, working out which debts to tackle first can feel overwhelming. The good news is that there’s a clear system you can follow to get back on track.

Not all debts carry the same consequences if left unpaid. Some could result in losing your home or having essential services cut off. Others, while still important, won’t have such immediate or severe impacts on your daily life.

This guide explains how to categorise your debts by urgency, which ones to pay first, and what steps to take if you’re struggling.

If you’re looking for ways to manage your money more effectively, tackling debt in the right order is one of the most important steps you can take.

Why Debt Prioritisation Matters

When you’re juggling multiple debts, your first instinct might be to pay whoever is chasing you the hardest. But this approach can actually make your situation worse.

Paying debts in the wrong order could mean losing your home while keeping up with a store card. It could mean having your electricity cut off while you’re still paying a catalogue debt.

Creditors who shout the loudest aren’t always the ones you should pay first. A debt collector calling daily about a credit card is stressful, but that debt won’t result in bailiffs at your door.

By understanding which debts are genuinely urgent, you can make rational decisions rather than emotional ones.

The Three Categories of Debt

Financial experts divide debts into three categories based on the severity of consequences for non-payment:

1. Urgent Debts

These are debts where legal action has already begun or is imminent. If you have urgent debts, contact a free debt advice service straight away.

2. Priority Debts

Priority debts are those where non-payment leads to serious consequences like losing your home, having utilities disconnected, or facing criminal prosecution. The term “priority” doesn’t mean highest interest rates. It means the penalties are severe.

3. Non-Priority Debts

Creditors can take you to court, but they cannot take your home, cut off utilities, or have you imprisoned. Address these after your priority debts are under control.

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Priority Debts: What Counts and Why

If you’re behind on any of these, they should be at the top of your repayment list.

Mortgage or Rent Arrears

Your home should always be your first priority. Falling behind on mortgage payments can lead to repossession, while rent arrears can result in eviction.

Contact your lender or landlord as soon as possible. Many will work with you to arrange a payment plan rather than pursue legal action, which is expensive and time-consuming for them too.

For mortgage holders, your lender must follow strict rules before repossessing your home. They must give you time to catch up and consider any reasonable proposals you make.

Council Tax

Council tax is one of the few debts in the UK that can result in imprisonment, though this is rare and only happens after a long process of ignoring court orders.

More commonly, unpaid council tax leads to:

• ● Bailiff action
• ● Money taken directly from wages
• ● Deductions from benefits

 
Most councils have hardship funds and will agree payment plans. Contact them early rather than waiting for enforcement action.

Gas and Electricity Bills

Energy debts are priority because suppliers can disconnect your gas and electricity if you don’t pay. While there are protections for vulnerable customers, no one wants to risk being without heating or power.

If you’re on a prepayment meter, your supplier might increase the debt repayment amount, leaving you with less credit for actual energy. This can create a cycle where you’re constantly running out of power.

Energy companies must offer affordable repayment plans. Ask about their hardship schemes. Many also offer grants for customers in genuine difficulty.

Secured Loans and Car Finance

A secured loan is backed by an asset, usually your home or car. If you don’t pay, the lender can repossess that asset to recover what you owe.

Car finance through HP or PCP works similarly. Miss payments and the finance company can take back the vehicle. If you need your car for work, losing it could affect your income and make all other debts harder to manage.

Talk to the lender about restructuring the agreement. Extending the term or temporarily reducing payments might be possible.

Child Maintenance Arrears

If you fall behind on child maintenance through the CMS, they have strong enforcement powers including:

• ● Taking money from your wages
• ● Seizing assets
• ● Removing your driving licence or passport
• ● In serious cases, imprisonment

 
If your circumstances have changed and you genuinely cannot afford your current payments, contact the CMS to request a reassessment.

Tax Debts to HMRC

HMRC has extensive powers to collect what you owe, including taking money directly from your bank account or wages.

However, they will usually negotiate payment plans if you contact them proactively. They’d rather receive payment over time than spend money on enforcement action. Be honest about what you can afford.

Court Fines

Fines from magistrates’ courts are priority debts. Non-payment can lead to bailiff action, wage deductions, and ultimately imprisonment. You can apply to the court to have payments reduced due to hardship.

Non-Priority Debts: What’s Included

These debts still need attention, but the consequences of falling behind are less severe:

• ● Credit cards and store cards
• ● Personal loans and overdrafts
• ● Catalogue debts
• ● Buy now pay later
• ● Money borrowed from friends and family

 
If you miss payments on these, you’ll face late fees, credit score damage, and eventually default. The creditor might sell your debt to a collection agency or take you to county court.

But they cannot take your home or cut off essential services.

If you have an unsecured loan you’re struggling with, contact the lender. Many will freeze interest and charges if you’re in genuine hardship.

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Step-by-Step Debt Prioritisation Process

Here’s how to put this knowledge into practice.

Step 1: List Everything You Owe

Write down every debt including:

• ● Creditor name
• ● Total amount owed
• ● Minimum monthly payment
• ● Interest rate

 
You cannot make good decisions about debt without knowing the full picture. This might be uncomfortable, but it’s essential.

Creating a proper budget alongside your debt list will show exactly how much you have available for repayments.

Step 2: Categorise Each Debt

Go through your list and mark each debt as urgent, priority, or non-priority using the categories explained above. Be honest about where things stand. If court action has already begun, that debt is urgent regardless of the type.

Step 3: Address Urgent Debts Immediately

If legal action is imminent or already underway, contact a free debt advice service today:

• ● StepChange: 0800 138 1111
• ● National Debtline: 0808 808 4000

 
They can help you understand your options and negotiate with creditors on your behalf.

Step 4: Create a Priority Debt Repayment Plan

Focus on keeping up with priority debts first. Mortgage, rent, council tax, and utilities should be paid before anything else.

If you cannot afford minimum payments, contact each creditor to explain your situation. Ask about hardship schemes, payment holidays, or reduced payment arrangements.

Step 5: Manage Non-Priority Debts

Only after priority debts are under control should you focus on non-priority debts. If money is very tight, consider offering token payments of £1 per month while you concentrate on priorities.

Most creditors will accept this temporarily if you explain your situation clearly.

Two Popular Debt Repayment Strategies

Once your priority debts are managed, choose an approach for clearing non-priority debts.

The Debt Avalanche Method

List debts by interest rate and focus extra payments on the highest-rate debt first while making minimum payments on everything else. This approach saves you the most money in interest over time. The downside: if your highest-rate debt is also your largest, it might take months to see progress.

The Debt Snowball Method

List debts by balance size and focus on the smallest first, regardless of interest rate. Clearing small debts quickly gives you wins that build momentum. The trade-off is paying more interest overall, but if quick wins keep you motivated, this might be worth it.

When Short-Term Borrowing Might Help

Sometimes a short-term loan can help manage a temporary cash flow problem.

For example, if you need to cover an essential bill this week but you’re being paid next week, borrowing a small amount might prevent a priority debt from becoming urgent.

However, borrowing to pay off other debts is rarely a good long-term solution. If you’re already struggling with repayments, adding another debt usually makes things worse.

Only consider borrowing if you’re confident you can afford the repayments. If unsure, speak to a debt adviser first.

At PaydayUK, we work with an industry-leading panel of FCA-regulated lenders. Our service is completely free, and checking your eligibility uses a soft credit check that won’t affect your credit score.

If you need to borrow, small loans for specific amounts can help you avoid borrowing more than necessary. We offer loans from £50 to £5,000 with repayment terms from 3 to 36 months.

What to Do If You Cannot Pay Your Debts

If your total debt repayments exceed your available income, you need additional help.

1. Contact Your Creditors

Creditors would rather work with you than against you. Most will consider reduced payments, frozen interest, or extended terms. Have your budget ready when you call.

2. Seek Free Debt Advice

Free services can help you understand options and negotiate on your behalf:

• ● StepChange Debt Charity: 0800 138 1111
• ● National Debtline: 0808 808 4000
• ● Citizens Advice
• ● MoneyHelper

 
These services are genuinely free. Never pay for debt advice.

3. Formal Debt Solutions

If informal arrangements aren’t enough, options include Debt Management Plans (DMPs), Individual Voluntary Arrangements (IVAs), Debt Relief Orders (DROs), and bankruptcy. A debt adviser can explain which suits your circumstances.

Protecting Your Mental Health

Debt can seriously impact your mental health, relationships, and quality of life. If you’re feeling overwhelmed, you’re not alone.

Taking action, even small steps, helps reduce anxiety. Writing down your debts, making one phone call, or seeking advice can all make the situation feel more manageable.

If debt is affecting your mental health severely, organisations like Mind and Samaritans offer support. Your GP can also help.

Remember that debt problems are fixable. Millions of people have worked through difficult financial situations and come out the other side.

How PaydayUK Can Help

PaydayUK is a credit broker, not a lender. We connect customers with FCA-regulated lenders through our secure online platform.

Our service is completely free, and we never charge any fees.

If you need short-term finance to cover an emergency expense, our application takes just 60 seconds. We use a soft credit check initially, so checking eligibility won’t affect your credit score.

Key facts about PaydayUK:

• ● Over 1 million customers helped since 2020
• ● 7,500+ applications processed daily
• ● 4.7 out of 5 stars on Trustpilot from 6,281+ reviews
• ● Loans from £50 to £5,000
• ● Repayment terms from 3 to 36 months

If you have bad credit, our panel includes lenders who specialise in helping customers with past credit difficulties.

Learn more about responsible lending and how we ensure borrowing is right for you.

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Warning: Late repayment can cause you serious money problems. For help, go to moneyhelper.org.uk