How can I get help prioritising my debts?

26 October 2009

People talk about `prioritising` debt in two ways: making overpayments in the order that saves them the most money, or prioritising problem debts (which is the focus of this article).

When it comes to repaying problem debts, establishing which debts are your biggest priorities is important.

It`s important that you repay all your debts, but because some carry a higher risk of serious consequences (such as repossession) if you miss payments, different types of debt must be treated differently - when it comes to certain debt solutions, for example.

Priority vs. non-priority debts

When you enter into certain debt solutions, such as a debt management plan or an IVA (Individual Voluntary Arrangement), your debt adviser (or Insolvency Practitioner) will take into account which debts are your `priority debts` and which are your `non-priority debts`.

This does not mean that non-priority debts aren`t important - it simply reflects the fact that the consequences of failing to repay your priority debts could be particularly serious.

Your priority debts include:

• Mortgage / rent
• Council tax arrears
• Energy bill arrears
• Court fines
• Secured loans (or other debts secured against your property)

Your non-priority debts include:

• Unsecured personal loans
• Credit cards
• Overdrafts

As you can see, your priority debts are essential to your standard of living - without paying them, you could be at risk of losing your home, for example, or your gas and electricity connection.

Not paying your non-priority debts could also carry serious consequences, but it is much less likely to result in repossession.

If you enter into a debt management plan or IVA, your priority debts will effectively be counted as your `overheads` - your essential costs that must be covered before your debt repayments are calculated.

Once these have been accounted for, the remainder of your monthly income will be how much you can afford to put towards your non-priority debts, to be divided among your lenders on a pro rata basis (i.e. according to what proportion of your total debt each lender is owed).

If you`re struggling with debt and need help prioritising your debts, click here or call our expert debt advisers today on 0800 074 8639.

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