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It's not always easy managing your finances. It’s perfectly normal to have some slip-ups and most of us will get behind on payments at some point in our lives.
But being behind on several payments can be particularly overwhelming. If you have several debts with different creditors, it can be tricky to know how to start paying them back.
It’s very important to prioritise your debts. This means you should start paying back the most important debt first and then move backwards. Prioritising your debts can also help you to save money and clear debts faster.
Read on to learn how to prioritise your debts and get back in control of your finances.
Why is it important to pay off debts in the right order?
Some debts will have more serious consequences than others if you don’t pay them back on time. You should always start by paying off these debts first. This will prevent any serious escalation happening, like court summons, interest or bailiff action.
Follow these steps to prioritise your current debts.
Categorise your debts
The first thing you need to do is split your debts up into order of importance. You should tackle your debts in the following order:
- Debt emergencies
- Priority debts
- Non-priority debts
Debt emergencies
These are debts with the most serious consequences for not paying, such as:
- court action
- bailiff action
- disconnection from priority services
- eviction for mortgage or rent arrears
If any of your creditors have said they will carry out any of the above, you should seek free, independent debt advice urgently. A debt advisor will be able to explain your options to you, help you with what to do next and talk to the court, bailiff or creditor on your behalf.
Some charities which offer debt advice include:
You should always turn up to a court hearing if you have one. In court, you can explain your situation and put your case forward. This can help you and your creditor reach an agreement that works for both of you.
Find more information on debt emergencies here.
Priority debts
Priority debts have serious consequences if you don't pay them, but aren’t as imminent as emergency debts. They aren't necessarily the largest debts or ones with the highest interest rates.
Priority debts can include:
- Court fines
- Council tax
- TV Licence
- Child maintenance
- Gas and electricity bills
- Income Tax, National Insurance and VAT
- Mortgage, rent secured loan arrears
- Hire purchase agreements, if what you’re buying with them is essential
- Missed payments owed to DWP (Department for Work and Pensions) or HMRC
Phone or internet bills
You might have other debts, not listed above, which could lead to serious problems for you. For example, if you need your car for work, then missing car finance payments could lead to your car being repossessed, meaning you can’t get to work.
You should think about the financial and personal impact of each of your debts, when categorising them.
The consequences of not paying off priority debts could be:
- being visited by bailiffs
- receiving a court summons
- being made bankrupt
- having your electricity or gas cut off
- losing your home – because you’re not keeping up with mortgage or rent payments
- going to prison as a last resort if you’ve ignored or refused to pay.
We encourage you to access free debt advice if you are struggling to deal with priority debt, or if you have multiple priority debts and are unsure which one to deal with first.
Non-priority debts
Once you have got your priority debts under control, you should look at your other debts. Non-priority debts don’t have such serious consequences, but you shouldn’t ignore them.
Non-priority debts may include:
- credit card or store card debts
- catalogue debts
- unsecured loans including payday loans
- unpaid water bills - your supplier can’t cut off your water supply
- overpayments of benefits - apart from tax credits
- unpaid parking tickets - these are called Penalty Charge Notices or Parking Charge Notices
- money you owe to family and friends
- overdrafts
- personal loans
Lots of creditors can give you breathing space on your non-priority debts while you deal with your priority debts. You should ask your creditor for breathing space and explain that you are currently paying off emergency or priority debts first. Find out more here.
You should repay your creditors fairly
Any spare money that you can put towards your non-priority debts should be shared between your creditors, with larger amounts put towards larger debts.
As always, it's a good idea to talk to a debt advisor first if you are struggling with multiple debts.
Remember, everyone's priorities will vary. This information should be considered a general guide and should not replace professional advice. Everybody's individual financial situations vary, so you should prioritise your debts according to your unique situation.
Resolve debts with Ophelos
If we have sent you a message about an outstanding balance, you can log on to our online portal with your reference code.
Our repayment plans are customisable to fit your personal situation, and we provide useful, judgement-free help every step of the way.
