Understanding how some debts matter more than others is a crucial aspect of effective debt management. While many people may assume that all debts are created equal, the truth is that certain debts carry greater significance than others, both in terms of the immediate consequences of non-payment and the long-term impact on one’s financial stability.
Why are Priority Debts Important
Priority debts are important because they have a direct impact on an individual’s basic needs and legal obligations. For example, mortgage or rent arrears can lead to eviction and homelessness, while council tax arrears can result in legal action and even imprisonment in extreme cases. Child maintenance payments are also considered a priority debt, as they are legally mandated and necessary for the well-being of the child. Failure to address priority debts can have severe consequences, both financially and personally, making them a top priority for anyone dealing with debt.
Why are Non Priority Debts Less Important
Non-priority debts are generally considered less important than priority debts because they do not have the same immediate or legal consequences of non-payment. For example, credit card debts or personal loans may carry high-interest rates and negatively impact one’s credit score, but they do not typically result in legal action or threaten basic needs like housing or food. Non-priority debts are also often more flexible in terms of repayment, with lenders willing to negotiate payment plans or settle for a reduced amount. However, while non-priority debts may not carry the same urgency as priority debts, it is still important to address them in a timely manner to avoid accruing additional interest and fees or legal action after time.
Why are Non Priority Creditors More Aggressive
Non-priority creditors may be more aggressive in their debt collection efforts because they do not have the same legal rights and protections as priority creditors. For example, priority creditors like mortgage lenders or local councils can take legal action to recover debts and may have the power to seize assets or take other measures to enforce payment. Non-priority creditors, on the other hand, are typically limited to sending letters, making phone calls, and reporting the debt to credit agencies. As a result, non-priority creditors may resort to more aggressive tactics like harassing phone calls or threatening letters in an attempt to pressure the debtor into paying. Although a creditor chasing a non-priority debt can take legal action, this does cost them and will try aggressive tactics before they do start legal action.
What are Considered Priority Debts
- Mortgage or rent arrears: Falling behind on rent or mortgage payments can lead to eviction and homelessness, making these debts a top priority.
- Council tax arrears: Non-payment of council tax can result in legal action, fines, and even imprisonment in extreme cases.
- Gas and electricity bills: Utility companies can disconnect services if bills are not paid, making it crucial to address these debts in a timely manner.
- Child maintenance payments: Failure to make child maintenance payments can result in legal action and negatively impact the well-being of the child.
- Court fines: Fines for criminal offences or other legal penalties must be paid promptly, as failure to do so can result in further legal consequences.
- Income tax or VAT arrears: Tax debts can lead to legal action by HMRC and may result in additional penalties and interest.
- Hire purchase agreements: If payments are not made on hire purchase agreements for essential items like cars or household appliances, the items can be repossessed.
- TV licence fees: Failure to pay TV licence fees can result in legal action and fines.
It is important to note that this is not an exhaustive list and that the specific priority debts can vary depending on individual circumstances. Seeking advice from a debt advisor or professional can help individuals determine which debts to address first and develop a plan for managing their debts in a sustainable way.
What are Considered Non Priority Debts
- Credit card debts: While high-interest rates and fees can make credit card debts challenging to manage, they do not have the same immediate or legal consequences of priority debts.
- Personal loans: Similar to credit card debts, personal loans are typically considered less urgent than priority debts and can be more flexible in terms of repayment.
- Overdrafts: Overdrafts on bank accounts can carry high fees and interest rates, but they are not typically considered a priority debt.
- Catalogue debts: These debts, which are incurred through purchasing goods from catalogues on credit, are generally considered non-priority debts.
- Student loans: While student loans are an important financial obligation, they are typically considered less urgent than priority debts and have more flexible repayment options.
- Store card debts: Debts incurred through store cards, which are similar to credit cards but are specific to a particular retailer, are typically considered non-priority debts.
- Unsecured loans: Loans that are not secured against an asset, such as a car or a property, are generally considered non-priority debts.
Again, it is important to note that this is not an exhaustive list, and the specific non-priority debts can vary depending on individual circumstances. Seeking advice from a debt advisor or professional can help individuals determine which debts to address first and develop a plan for managing their debts in a sustainable way. Maybe a meeting with the CAB would be a good starting point?
How do I know which debts are priority and which are non-priority?
The specific priority and non-priority debts can vary depending on individual circumstances, such as the type and amount of debt, personal income, and living situation. However, a general rule of thumb is that priority debts are those that have immediate or legal consequences for non-payment, such as rent arrears, council tax arrears, and court fines. Non-priority debts, on the other hand, do not have the same immediate or legal consequences and are typically more flexible in terms of repayment.
Should I pay off my non-priority debts before my priority debts?
While it may be tempting to focus on paying off non-priority debts first, it is generally recommended to prioritise priority debts to avoid legal consequences and ensure basic needs like housing and utilities are met. However, it is important to also address non-priority debts in a timely manner to avoid accruing additional interest and fees. Seeking advice from a debt advisor or professional can help individuals develop a strategy for managing their debts in a sustainable way.