It can feel really overwhelming when faced with debt. You might be facing multiple debts including priority bills and non-priority bills, all accumulating interest and feeling out of control.
You may not know where to start or who to ask for help. You might feel like you want to try to resolve your financial situation by yourself before seeking help. If that’s the case we need to organise your debt and ensure you’re paying priority debts first.
Let’s take a look at where to get started.
Understanding the two main types of debt
There are two main types of debt: priority debts and non-priority debts.
Here are some examples of priority debts:
- Rent or mortgage
- Council tax
- Magistrates court fines or CCJs
- Tax bills for the self-employed
These are called priority debts because the consequences of not paying them are much more serious than non-priority debts. You could, for example, lose your home if you don’t pay your mortgage.
Non-priority debts include:
- Credit cards
- Unsecured loans
Generally, if you miss payments on these kinds of debts, whilst you may initially incur defaults and your credit rating could be affected, there aren’t any serious consequences at first. You can usually negotiate on these debts and get your payments significantly reduced. They can become more serious, however, if you don’t deal with them.
Now we understand which debts are which, we can work on a plan. Follow these steps to gain control.
1. List your debts
Note down all your debts, how much you owe in total, how much you need to pay on each and the due date on each one. If you know the interest rate, that can be helpful information.
Now note down which ones are priority debts and which are non-priority.
2. Work out your budget
Take a look at what you have coming and what you have going out. Try to maximise what you have coming in. You can check you are getting all benefits you are entitled to or you could see if you can pick up an extra income.
You could even try having a clear out and selling what you can on eBay for a quick hit. Then try to minimise what is going out. Check you are paying the minimum on insurances, gas and electric and food shopping, for example.
Subtract your outgoings from your income. If there is nothing left over, you may need to seek more advice, particularly if you have priority debts. If you do have money left over, is this enough to cover all your debts?
3. What can you pay
If you have enough left over to pay your debts each month, set a plan. Make sure you pay them all on time. Ensure the priority debts are paid. Once these are up to date you can tackle the unsecured debt. A good technique is to pay the one with the highest interest rate first.
If you don’t have enough to pay all your minimum payments, check if you can afford your priority debts. If you do, ensure these are paid, then get in touch with your unsecured debts and ask them to help you with an arrangement.Negotiate to reduce the payment and if you can get the interest frozen. They will probably go through your budget with you to ensure you’re paying what you can afford.
If you are struggling to afford payments to both priority and non-priority lenders, again it could be a good idea to seek professional advice. You could also try contacting the priority lenders first to come to an arrangement, then get in touch with the non-priority lenders.
It’s essential to pay debts in the right order to ensure you don’t incur serious consequences. Non-priority debts are easier to negotiate on and your lenders should all try to be helpful in helping you resolve your overall financial situation. Have you tried budgeting to get ahead with your debts?