If you have lots of debt and it comes from different places, it can be hard to work out which one to pay off first. Perhaps you have some credit card debt, unpaid electricity bills, a store card and you owe money to a friend.
Prioritising these debts can be so stressful that it’s not uncommon for people to stick their heads in the sand and make no progress at all. If this sounds familiar, don’t beat yourself up. Debt is extremely common and having lots of it is not something to be ashamed of. The fact you’re researching your options and reading this blog post tells me that you care about getting back on track and you’re doing what you can to fix the problem. Be proud of that!
I’m going to help you work out which debt is most important so you can get started. I’ll also point you in the direction of some helpful debt repayment resources so you can find specialist help if necessary.
What order should I pay off my debt?
Some people say you should prioritise your debts based on their interest rates. By paying off your higher-interest debts first, you can make sure your money is spent paying off what you owe rather than having to keep up with interest.
Others say you should pay your debts off in order of size, starting with the smallest. When you consider how rewarding it can be to tick things off a to-do list, this approach can make psychological sense. When you tick those small debts off your list, you’ll feel confident, in control and you’ll get that ‘i did it!’ buzz.
But both these strategies overlook a type of debt that can have serious consequences if you push it on the back burner: Priority debts!
What does priority debt mean?
‘Priority debts’ are a term used in the debt advice industry to describe debts that can cause you serious problems if you don’t do anything about them.
While non-priority debts can lead to interest and become more unaffordable over time, priority debts can lead to the loss of your home, your electricity being cut off or even court cases and prison! I know this may be hard to hear but simply knowing this uncomfortable fact puts you in a better position. Knowledge is power, after all.
What are priority debts?
I’m going to break down the different types of priority debt. If you spot any that look familiar, it might be worth making a note of them.
Rent arrears
If you miss a rent payment, this is known as being in ‘arrears’.
Rent arrears are classed as a priority debt because your landlord might evict you from your home if you don’t pay.
If you’re unable to pay your rent, talk to your landlord or letting agency as soon as possible to explain the situation. Pay as much as you can and ask them if it’s possible to make the rest of the payment at a later date. If your landlord is a heartless melt, this approach might not work. It’s worth a shot anyway.
If your attempts at reasoning with them are unsuccessful, your landlord might start the eviction process.
Mortgage arrears
If you miss a mortgage payment, this means you’ll be in mortgage arrears.
Try not to ignore the problem because it won’t go away on its own and you may lose your home.
One of the best things you can do is get in touch with your mortgage provider as soon as possible to explain the situation and find out how they can help.
Banks and building societies have a responsibility to treat you fairly and work with you to find a solution. In some cases, this might mean temporarily changing your payment amounts or payment dates to make the debt more manageable.
They can take you to court to try and repossess your home but even if it reaches this stage, it may be possible to delay or stop the process by seeking specialist advice. Get in touch with Citizen’s Advice for guidance.
Council tax arrears
Council tax arrears are classed as a priority debt because your local council might take you to the magistrate’s court if you don’t pay.
Choosing not to pay council tax even if you have the money could lead to a prison sentence. If you’re genuinely unable to pay, you won’t go to prison.
Gas or electricity bills
If you have unpaid gas or electricity bills with your current supplier, this should be on your priority list because your provider has a right to cut off your energy supply.
They cannot cut you off without offering you a payment plan to make it easier for you to pay.
They also must give you 7 days’ notice in writing before disconnecting your supply.
Phone and internet
If you rely on your phone and internet connection, whether it’s for work, to care for a loved one, or for some other reason, it’s wise to pay off this type of debt ASAP. Failure to pay could see your phone or internet disconnected.
If it’s really important for you to have access to your phone or the internet, get in touch with your suppliers as soon as possible to find out if a payment plan is available.
TV licence payments
TV licence payments are classed as priority debt because you could be fined by the magistrate’s court if you watch TV without a licence.
If you have the money but choose not to pay a court fine, you could be sent to prison. You won’t go to prison if you can show you can’t pay.
Court fines
If you commit a crime and receive a court fine, you must pay this money if you’re able to do so. Failure to pay the money could lead to a prison sentence. If you can show that you’re unable to pay, you won’t go to prison.
Overpaid tax credits
If you’ve been overpaid tax credits, HM Revenue and Customs (HMRC) have a right to reclaim the money. They can:
- deduct the money from your wages
- deduct the money from your benefits or tax credits
- use bailiffs to take your property
Although HMRC must warn you if they’re going to do this, they don’t have to go to court first.
If you choose not to pay the money back despite being able to do so, this could see you being taken to court or even sent to prison. If you’re genuinely unable to pay the money and can prove this, you won’t be sentenced to prison.
Payments for goods bought on hire purchase or conditional sale
If you buy something on hire purchase or conditional sale, you pay for it in instalments and you don’t own it until you finish paying. This can be considered a priority debt because failure to pay could see the creditor taking back the items you bought, whether it’s a car, fridge, or something else.
If you’re reliant on that item and losing it would significantly impact you, this type of debt should be a priority.
Unpaid income tax, National Insurance or VAT
If you’ve not paid income tax, have missing National Insurance contributions or you’ve failed to pay VAT, HMRC have the right to take the money from your wages or use bailiffs to take your property away.
HMRC don’t need to take you to court to do this but they will give you a warning before taking drastic action.
If you can afford to pay the money but choose not to, this could lead to a prison sentence if HMRC takes you to court. If you genuinely can’t afford to pay, you won’t be sent to prison.
Unpaid child maintenance
Unpaid child maintenance is a priority debt because the Child Maintenance Service can take the money from your wages or bank accounts.
You’ll be warned before this happens but HMRC doesn’t need to take you to court first.
If you can afford to pay the money but don’t, this could lead to the loss of your driving licence or passport for up to two years. In some cases it can lead to a prison sentence unless you can prove you’re unable to pay the money.
What are non-priority debts?
Since the above are classed as priority debts, this means there are other types of debt that are categorised as ‘non-priority’.
Non-priority debts include:
- Credit card debts
- Store cards
- Buy-now-pay-later debts
- Catalogue debts
- Unsecured bank loans
- Overdrafts
- Payday loans
- Water bills
- Loans from family and friends
Although these debts are not classed as ‘priority debts’, this doesn’t mean they’re unimportant.
There may be personal factors that influencer how quickly you focus on the above debts. For example, if you have taken out a loan from a friend or family members and you also have credit cards, you may choose to repay your friend or relative before you pay the credit card company. I’m not saying this is the right decision but it’s a personal one.
Well, this is scary…
I’m sorry if I’ve scared you. Thankfully, it’s extremely rare for people to be sent to prison for debt. It isn’t something that just happens overnight. You don’t miss a bill on Monday and end up in a prison van by Friday. There will be numerous opportunities to repay the money and there is far more support available than you might imagine. Prison is absolutely a last resort, though personally I don’t think anyone should be sent to prison for debt.
What can I do about my priority debts?
The most important thing is that you’re proactive and demonstrate a desire to repay what you owe. By showing that you’re responsible and have simply fallen on hard times, you can usually come to an agreement with your creditors.
Whether you have just one priority debt or you have several, get in touch with your creditors as soon as possible to explain the situation and see what your options are.
If the debt has become unmanageable, a creditor is taking matters further or you’re feeling so overwhelmed you don’t know what to do, get in touch with Citizens Advice or StepChange. These people are experts and they’ve helped millions of people just like you to get their debts under control. You’ve got this!
