When you’re in debt, it is important to know exactly what type of debts you have (priority and non-priority), in order to know which you should be tackling first.
It makes very little sense paying off an overdraft when you have missed a TV licence payment. Yes, you may continue to incur interest by staying in the red on your overdraft, but that won’t be anywhere near as bad as the prosecution, court appearance and a fine of up to £1,000 you might face if you don’t pay your TV licence. Makes sense, right?
What Debts to Pay When
Knowing which debts should take priority and understanding what happens if you don’t pay, should help keep the roof over your head and you and your family out of trouble.
The aptly named ‘priority’ debts, refer to arrears where the consequences of not paying them can be incredibly serious. They include:
- Mortgage repayments
- Fuel debts
- Child support and maintenance payments
- TV licence payments
- Certain payment orders by the court
The result of not paying can include losing your home and other assets, imprisonment, bankruptcy and the disconnection of supply to gas and electricity; therefore these should be dealt with before any other debt.
It is important to be aware that whilst technically an overpayment of benefits is a non-priority debt, if you are still receiving benefits you may have little say in how it is paid off, as the government will simply reduce future benefits to compensate.
The outcome of failing to resolve ‘non-priority’ debts is often less serious, for example you cannot be imprisoned for not paying non-priority debts and you are unlikely to lose your home or goods. However, creditors can take you to court and sue for any money that you owe. They include:
- Credit cards and store cards
- Catalogue debts
- Overpayment of benefits
- Money owed to family and friends
- Overdrafts and bank loans
- Loans to money lenders
Payments to non-priority creditors can be reduced to as little as £1 per month if your income is low but you may need help to put this in place.
If you are having trouble paying your priority debts and/or your non-priority debts are really racking up, then it would be a good idea to contact Step Change to get specialist help.