Reasons You Should Prioritise Your Debts

UK residents are often seen taking on different forms of debt, for example, mortgage, car loan, payday loan, personal loan, holiday loan and many more. Now, everybody needs money for an emergency or simply due to low savings. Debt is unavoidable in certain circumstances. Many people struggle with the questions, “Which loans should you pay off first?” “What are the likely consequences of delaying payments or missing them altogether?” Read more to find out how prioritization can save money and make you debt-free faster.

How Are Debts Classified?

You can classify any credit you’ve taken into three groups in the following order:

• Debt emergencies
• Priority debts
• Non-priority debts

Why Should I Pay Them In This Order?

There are two types of loans available- unsecured and secured loans. While unsecured loans are given based on your affordability, your assets are tied with secured loans. Timely repayments on secured loans make sense as you’re at risk of losing the asset like home or car. Also, not paying off some bills can carry serious consequences. It’s advisable that you clear off your borrowing in a sensible manner.

What Is A Debt Emergency and Why Does It Matter So Much?

When you’re face-to-face with legal action by a lender or other equally serious outcomes, the situation is termed as a debt emergency. It could be anything like:

• County Court Judgement (CCJ)
• Bailiff action
• Disconnection
• Eviction for rent or mortgage arrears

If you’ve got a CCJ, it’s in your best interests to go for the court hearing. Once in court, you can explain your financial situation and affordability. The authorities will surely consider your predicament and give a favourable decision. However, if you deliberately keep away from the hearing, you don’t get to influence the judgement and may come in for further legal action like a bailiff turning up at your home or workplace. If you’re struggling with debt, you can talk to a financial adviser or look up free advice on the Internet. Some courts may help you with advice organizations- Shelter or Citizens Advice.

What Are Priority Debts and What Happens If I Don’t Pay?

These carry the most serious consequences you can think of. They don’t necessarily have a huge borrowing amount or the most expensive interest rates. Here are some of them:

• Mortgage or rent secured against your property
• Income Tax, National Insurance and VAT
• Hire purchase agreements secured against your vehicle
• Fines imposed by the court
• Council Tax
• TV Licence
• Child maintenance
• Gas and power bills

People tend to forget repayments or they don’t have enough money. Whatever the case may be, the consequences that come with priority debts are:

• Bailiff visiting you at home or work
• Getting a court summons
• Heating and lighting cut off due to unpaid bills
• Becoming bankrupt
• Losing your home because you’re not keeping up with repayments

What Are Non-Priority Debts and Can I Pay Them Off At Leisure?

Non-priority debts don’t usually lead to immediate consequences in case you don’t repay. But eventually, you may be called to court or visited by a bailiff to collect money. The most common forms of non-priority credit are:

• Personal loans
• Loans from banks or building societies
• Overdrafts
• Money lent by family or friends
• Loan accumulated on your credit card, store card or payday loan
• Catalogue, home-credit or in-store credit
• Water and sewerage bills

Useful Tips

Remember to pay at least the minimum on such debts. If you come into some extra cash, you could consider overpaying to be free from worry soon. Before doing this, ask your lender for any penalty or default charges. Start with the most expensive and highest priority debt first. You should also seek debt advice- online, face-to-face or over the phone.