What would you say to someone asking which of these bills and debts they should pay first?
- Housing Benefit overpayment £500
- Catalogue £250
- Credit card £600
- Council tax £600?
This is an increasingly common sort of situation in Britain.
Citizens Advice has reported in August 2018 that £19billion is owed to essential bills including council tax and benefits overpayments.
What are priority debts?
Some bills and debts are more important than other ones – because you could lose your home, be sent to prison or something else bad can happen if you don’t pay them. I’ve listed all these priority debts here.
But it’s interesting to look at one person’s situation, juggling different sorts of debts, to see what they should be thinking about.
Which of these debts is the most urgent?
Council tax arrears are always a top priority to get sorted. More than a hundred people a year are sent to prison for not paying them.
And most local councils are quicker to take you to court for council tax debt and send in the bailiffs than any other sort of debt. If that happens, the £600 owed can grow to more than a thousand pounds over a few months.
So getting an arrangement in place with the council to repay the council tax is the first priority. You need to get an agreement with them before you look at what you can afford to pay to debts such as credit cards – even though in this case you owe the same to the council as you do to the credit card, you need to pay the council tax back faster.
Of course also look at whether you have been charged the right amount and whether you can get help with council tax bills from Council Tax Support.
Once you have an arrangement with the council, keep to it! Pay the exact amount agreed so it arrives by the correct day each month.
Housing benefit overpayment
Here you often don’t have much choice. An overpayment of housing benefit overpayment usually results in an amount being deducted from your current housing benefit, or from universal credit, if you had to switch to that. So you will have to increase your rent payments to cover this.
If you think too much is being taken, you may be able to ask to repay at a lower rate. Go to your local Citizens Advice to get help with this.
For council housing, if the housing benefit overpayment is recovered from your rent account, you then have rent arrears instead. These are top priority as you can lose your home, so you need to make an arrangement to pay your normal rent plus an amount towards the arrears. Get help from your local Citizens Advice if you can’t get an affordable arrangement agreed.
Catalogue and credit card bills
Once you have got an arrangement for the council tax and also know how much extra rent you will have to pay, you can then look at the non-priority debts – in this case the catalogue and credit card.
If you can make the minimum payments to both:
Here you want to know which to pay off first, the answer is usually the one with higher interest rate. The exception is if you have a Buy Now Pay Later deal from the catalogue… if you don’t repay that before the deal ends, you can get hit with a huge bill for backdated interest, see Buy Now Pay Later – why it often goes badly wrong.
If you can’t afford the minimum payments because you are paying too much to sort out the council tax arrears and not get into rent arrears:
Here you can ask the credit card and catalogue for an arrangement to pay, offering what you can afford. This may only be a token £1 payment. Ask them to freeze interest and explain you have priority debts to clear.
Does this all look impossible, or set to get worse?
Sometimes these sorts of debt happen because you had a problem in the past, but it’s over and you are now cleaning up the mess. In that case, it may take a while but you will get the priority debts cleared and then have more money to pay off the non-priority debts.
But if these debts have resulted from your current problems – debt keeps going up, reductions in benefits, less income from work, higher expenses etc – then it may get increasingly hard to solve them. If you keep up with the rent and council tax, you may get behind on utilities.
So if you don’t think your situation is temporary, it’s best to take some debt advice now. If you go to your local Citizens Advice, they can also look at whether there are any other benefits you could be getting or any other ways to improve your situation.