You might think your top priority debt is that wretched Pay Day Loan or the debt collector that keeps phoning you at work, or the money you borrowed from your sister who now needs it back. But the terms “priority” and “non-priority” debts have special meanings in debt advice and you need to know which of your debts is which, as it changes how you deal with them.
In June 2016, Citizens Advice published research showing that 28% of people would pay debt such as credit card bills or personal loans ahead of household bills, like rent, mortgage or utility bills – this is dangerous and putting yourself at risk.
- credit card debts (including store cards and catalogues)
- unsecured bank loans (including your overdraft)
- Pay Day Loans and doorstep lenders
- water bills
- loans from friends and family.
Failing to pay non-priority debts is usually less serious than not paying a priority debt. You can’t get sent to prison for paying non priority debts! But they can still result in CCJs, bailiffs, charges over your house, bankruptcy etc so “non-priority” doesn’t mean “safe to ignore.”
Sometimes you may want to make one of these debts a priority – perhaps you have a loan from your employer and are worried your job might be affected if you can’t repay it. Or your mum may have taken a loan so that you could buy a car and she can’t afford the loan repayments if you don’t pay them. If you have this sort of problem, it’s a good idea to get debt advice to help you resolve it.
- mortgage repayments and loans secured on your home
- HP payments for car, furniture etc
- guarantor loans and logbook loans
- gas / electricity bills
- child support and maintenance payments
- council tax
- income tax, VAT and other tax debts
- TV licence payments
- certain payments ordered by the courts
- penalty fines such as parking.
These are priorities because bad things can happen if you don’t pay them. Getting behind with the mortgage or rent can lead to eviction. Your gas or electricity supply could be cut off, or you may have to accept an expensive pre-payment meter instead. HP items can be repossessed. You could go to prison if you don’t pay your council tax, TV license, taxes or magistrates court fines. If that parking ticket isn’t paid quickly it may escalate alarmingly.
Being sent to prison is rare – for council tax it tends to be reserved for the “won’t payers” rather than the “can’t payers”. But councils are among the fastest creditors to go to court and this will add costs and possibly bailiffs charges to what you owe, so council tax arrears need to be given a high priority because of this.
Sort out the priority debts first
If you have a large debt problem including some priority debts, the priority debts need to be under control before the non-priority debts can be tackled. This essentially means making a separate agreement with each priority creditor to get them to accept £x per month. Before you start making these offers though, you need to know that you can genuinely afford them over the length of time it is going to take to clear the debts – draw up a Financial Summary and make it realistic! Only when you know what all these £x’s add up to will you know how much money you have left to offer to your non-priority creditors.
The absolute top priority for most people has to be any rent or mortgage arrears. See Worried about rent arrears and eviction? for details and where to get help for housing issues – those contacts are also good places for advice if you have mortgage arrears.
If you have income tax or VAT debts, the taxman usually wants a very short repayment period and won’t freeze interest – as a result it’s important to get a “time to pay” arrangement with HMRC first – see 10 things you need to know if you can’t pay your tax for more details.
If it’s not clear that you can resolve the priority debt problems or if you also have benefits problems at the same time, then you should probably get help by visiting your local CAB.
The good news is that your other creditors will understand that the priority debts have to come first. They may not like it, but they will accept it. If you know it is going to take several of months to sort out payments to priority debts, then you should consider writing to all your non-priority creditors and offering them a token payment of £1 a month – see setting up a Debt Management Plan for details on this.