When you are looking at which debts you need to pay off first, you need to work out which debts need to be treated as a higher priority.
Priority debts are things like council tax, gas or electricity, mortgage, rent, tv licence, maintenance or income tax arrears.
These are considered priority debts because failure to pay them could lead to the loss of goods or services. In some cases, non-payment of priority debts can also lead to imprisonment. Examples of the possible consequences of non-payment include:
- Mortgage arrears – you could have your home repossessed
- Rent arrears – you could be evicted from your home
- Utilities such as gas and electricity – you could have your supply cut off
- Council tax – the council could get an order from the Magistrates Court that allows them to instruct baliffs to take your belongings. In some cases, non-payment of council tax can lead to imprisonment.
- Child maintenance – you could be taken to court, and could even face a prison term
- Income tax – could lead to bankruptcy
- TV licence – you could receive a Magistrates Court fine of up to £1,000. In some cases, non-payment of TV license can lead to imprisonment.
- Magistrates court fines – could lead to bailiff action or imprisonment
- Secured loans – a loan where you are asked to put up your house/car etc as collateral for the loan. If you don’t pay your loan repayments, your collateral may then be at risk.
- Hire purchase – under a hire purchase contract, you are only leasing the item until you have paid the full amount. If you stop paying before you have paid the full amount, the ownership remains with the seller.
- Conditional sale agreements – this is when you take possession of the item, but its title and right of repossession remains with the seller until you pay the full purchase price (usually in installments stretched over months or years).
But don’t panic, as long as you act quickly, you should be able to stop these things from happening.
The key is to speak to all of your creditors (the organisations you owe money to) and arrange with them a reasonable way to pay your debts back. In certain circumstances, such as child maintenance, if you prepare a clear budget that shows what you can afford to pay, the courts may even lower the amount you owe.