Prioritising Your Debts
When you're looking to clear your debt, it's important to know which you should pay off first. These won't necessarily be the debts you're paying the most interest on, or the highest debts you have.
Where to start
Begin by writing down all of your debts. This includes any money you owe friends and family - everything you need to pay back.
Next, put each one of these debts into one of the three categories below. You'll find details of which debts belong in each category further down:
- Debt emergencies
- Priority debts
- Non-priority debts
Are you facing court action or eviction and can't make any of your repayments? This is a debt emergency and you should seek advice urgently.The Money Advice Service has a list of contacts who'll give free, independent advice online, over the phone or in person.
These are debts that could result in you losing your home, being made bankrupt, having your electricity or heating cut off, or being taken to court. There may be serious consequences if you can't repay your priority debts and you should seek debt advice immediately. If you can, contact the people you owe money to and arrange a repayment schedule.
Examples of priority debts:
- Mortgage or rent - where you could lose your home through repossession or eviction if you don't pay.
- Gas and electricity arrears - where they could cut off your supply if you don't pay.
- Secured loans - where they are secured on any of your possessions, which your creditor (the person you owe) can take away if you don't pay.
- Income Tax, National Insurance and VAT.
- Council tax debt.
- Child maintenance.
- Magistrates court fines - for a driving offence or for not buying a TV licence when you need one - where you could be sent to prison if you don't pay.
- Hire purchase agreements - where the item you purchased could be taken away if you don't pay. This is usually only a priority debt if the item is essential - e.g. a car you rely on because you are disabled.
These are debts that won't cause you to lose your home if you don't pay. Once you have paid off your priority debts, arrange to pay off these debts, starting with the ones that are costing you the most in interest or fees.
- Unsecured loans - where debts are not secured against any of your possessions,
- Credit debts e.g. overdrafts, credit card accounts, in-store credit debts and catalogues.
- Water bills - your water can't be cut off as a result of not paying your bills.
- Benefits overpayments - where the Department for Work and Pensions (DWP) can make deductions from your benefits to gather back anything they have paid you in error.
- Student loans.
- Money you've borrowed from friends or family.
- Parking penalties issued by local authorities (note that parking fines issued by the courts are priority debts)
- Hire purchase - where the item is not essential.