Most of us have, at some time, faced a challenge where we can’t afford to pay a bill. This could be a credit card, student loan, or payment for a utility bill. You may have enough made to pay off your bills but do not have enough to cover all of the debt that you are carrying.
If you’re feeling overwhelmed, then read on to find out more about which debts you should consider priority and which you can pay the minimum or overlook as you prioritise. Here’s why it’s important to get your debts paid off in the correct order;
If you try to pay off some debts before others and you get it wrong, the consequences can be severe. If you’re struggling to make the payments, then you need to split your debts into priority debts, non-priority debts and debt emergencies.
What are priority debts?
Priority debts are those where you can have serious action taken against you if you fail to repay. For example, if you don’t pay your mortgage, then your home could be repossessed. The important debts don’t necessarily have to be the biggest ones but are the ones with the most severe consequences. Property debts include debts such as:
- Secured loans
- mortgage repayments
- Council tax
- utility bills
- Court fines
Why you should pay off these priority debts before other things
These priority debts can cause you serious issues and stress. Failure to pay these debts can lead to eviction and legal problems, bankruptcy, having your heating or lighting cut off all you being asked to move out of your home.
The priority debts can mess with your basic living standard and your basic human needs. To avoid incurring debts that will put you under pressure, be sure to use a loan calculator to check if you will be able to meet your repayment obligations before making a commitment.
Non-priority debts won’t see you sent to prison, but you could be taken to court so that creditors can get paid. Creditors can then take more action if you don’t pay what is required by the court. As an example, creditors can get bailiffs to come round to take items away, such as cars or even washing machines if they have got a court order allowing them to do you say.
Once you’ve covered your priority debts and have them under control, you should look to non-priority debts.
Non-priority debts are things such as
- Bank and building society loans
- Money from friends and family
- Credit card, pay a loan and store card debt
- store cards and catalogue
Once you’ve worked out exactly what your debts are and what you can afford to pay, you can contact non-priority debts owners to make arrangements.
If you tell them why you can’t pay, about your current and future income and all of your obligations, and how you plan to get payments up to date, then they may well take a small payment monthly to keep your account in good standing.
You should always be aware if you have any emergency debts, such as CC Js or impending Bailiff action and make a priority to deal with these things. Be aware that many lenders will make threats for bailiff action and other things when, in reality, they are close. You need to understand which are emergency debts and this will normally mean the court action is ready been taken.
Your credit report will be affected if you don’t make payments on time, and they are listed on your credit report by the creditors. This can impede your ability to get credit for six years, which is the length that adverse events tend to stay on your credit file. By preventing things from getting out of hand, you can stop this adverse long-term effect on your credit file, so it’s definitely worth doing so as quickly as possible.