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.

If you’re struggling to pay your debts, it can feel overwhelming trying to create a balance that keeps all your creditors on track. It’s important to know which debts you should pay first, to have a plan and to stick to it. This isn’t as simple as just clearing those with the highest interest rates first.

Making sure you do not ignore debts is probably the most important thing to be aware of. Getting the help you need and talking to friends and family or charities that have been set up to help people in debt can help ease the burden.

How to prioritise your debts

Begin by writing down all your debts, including everything you owe out, even personal borrowing with friends and family that you don’t need to pay immediately. This will allow you to categorise them by priority quickly. Urgent debts, priority debts, and non-priority debts.

Urgent debts will include those that are taking court action against you because you can’t make any of your repayments. Urgent debts in this category usually require further assistance. Contact The Money Advice Service for additional information and help in dealing with these debts.

Priority debts are those that will impact your life in a big way. They can include obligations that could lead to having your home repossessed, losing your gas or electricity supply, being made bankrupt, or being taken to court. These debts are crucial, and if you start having difficulty with them, you should seek help immediately. You can contact the companies you owe money to and arrange a payment schedule you can manage.

Priority debts can include a wide range of debt types, such as:

Housing debts
Your mortgage or rent should always be the highest priority. Avoiding repossession or eviction is crucial for you and your family.

Utility debts
Once your house is secure, it’s essential to ensure your family can stay warm and safe. Clearing gas and electricity arrears will make life easier.

Secured loans
A secured loan is usually secured against a specific asset, such as a car is when you have an HP agreement. Avoiding repossession can be vital if it affects your ability to keep earning money.

Council tax
Most local councils will help you by creating a payment schedule you can manage.

Child maintenance arrears
This debt can see you end up in court if you don’t arrange to deal with it.

HMRC
If you owe income tax, national insurance or VAT, speak to HMRC to arrange a repayment schedule you can cope with.

These are debts that aren’t immediately going to cause you significant loss, such as losing your home or car but still require attention. You can contact the companies to arrange a small payment or to freeze the debt while you pay your priority debts. You can then focus on clearing the non-priority debts, usually starting with the one that’s charging you the highest interest rate first.

Non-priority debts include unsecured loans, credit cards, overdrafts, store cards, benefit overpayments, student loans, friends and family, or an HP agreement where the item isn’t essential.

If you communicate well, most lenders will be patient as long as you stick to what you say you’re going to do.

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