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Wednesday, 3 October 2012

Which debts to pay off first

When you're sorting out how to pay back your debts, you need to identify the most important ones. These are called your 'priority debts' and they should be settled first. Find out what priority debts are and where you can get help and advice.

Priority debts

The most important debts aren't necessarily the biggest ones. Priority debts are ones where serious action can be taken against you if you don't pay what you owe.

Some examples of priority debts, and the consequences of not dealing with them, are listed below.

Mortgages and secured loans

If you don't keep up with mortgage payments and payments on loans secured on your house, the lender can take legal action to take possession of your house and sell it.

Rent

If you fall behind with your rent, your landlord can take possession action in the county court to evict you (and you will still owe the rent arrears).

Tax, National Insurance and VAT

It's important to pay tax. Not paying tax could lead to you being made bankrupt. A tax debt alone is not a sufficient reason for a prison term, but cases of serious fraud could result in criminal proceedings.

Tax credits overpayments

If you've been overpaid tax credits, the Tax Credit Office usually asks you to pay back the extra money. If that means you are not able to meet essential living expenses such as rent, gas or electricity bills, call them to discuss your options.

Council Tax

Tell your council as soon as you think you're going to have a problem paying your bill. They may be able to reduce what you have to pay. For example, you might qualify for Council Tax Benefit or a discount you didn't know about.

Utility bills

Gas and electricity companies can disconnect their services to your home if you don't pay their bills. Even a phone bill can be a priority if you need the phone to help you earn your living.

You need to keep paying your ongoing water bills but any water arrears you have can be included with your ‘non-priority' debts (see below).

Hire purchase (HP) debt

Any debt should be seen as a priority if what you're buying on credit (or 'HP') is essential - such as buying a car you need for getting to work.

Other priority debts

A court could use bailiffs to come into your home and take your goods away if any of the following debts are unpaid:

  • Business Rates
  • magistrates’ court fines
  • maintenance and child support payments

Your goods would be sold to pay what's owed. If you still owe money after this, it's possible you might be sent to prison.

Non-priority or credit debts

You may not lose your home or go to prison for not paying 'non-priority' or credit debts. However, you can still be taken to county court and ordered to pay what you owe - often with extra costs on top.

If you still don't pay after you've been ordered to do so, there are a range of county court enforcement options your creditors can try to take against you.

It is very important that you get free and independent advice on your options for dealing with your non-priority debts.

Examples of non-priority debts include:

  • credit card or store card arrears
  • catalogue debts
  • water rates arrears
  • bank overdrafts and loans
  • personal loans with finance companies
  • loan shark loans
  • money borrowed from friends or family

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