Understanding debt can be confusing at times and knowing the difference between priority and non-priority debt is key to managing your money.
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Priority debts are those that could carry the most serious consequences if you don't pay them. They may not be the largest or most expensive, but if you don't pay them it could lead to serious problems. Priority debts include your rent or mortgage, energy bills, Council Tax and any court fines.
If your rent is not paid, the money owed is called 'rent arrears'. Rent arrears are also an example of ‘priority debts', which means the consequences of not dealing with them are often serious.
If you have a re-payment plan in place try and overpay it where you can, even if it’s just by £1, this will clear your arrears in a shorter time frame and help show your landlord you are committed to clearing your debt.
If you miss a Council Tax payment, you're in 'arrears', which means you owe money to your local council. If you find yourself behind on your Council Tax repayment, it’s important to take the first steps to find a solution. You can contact the council and tell them about your situation and they will be able to advise on next steps.
You might be able to pay less Council Tax or not pay it at all depending on your situation - check with your local council. You can find out how to contact your council here.
Owing money to an energy company is called ‘being in arrears’. Energy bills are ‘priority bills’ because missing or repaying your bill late could lead to your energy supplier taking action against you.
Gas and electricity companies can’t cut off your supply unless they have first offered you a range of payment methods to help you pay
Arrears on your broadband means you have an overdue payment that is owed to your provider.
If you receive certain benefits, you might be able to get a cheaper internet, mobile or phone deal called a ‘social tariff’. Read our blog here.
If you are caught watching TV without a licence when you need to have one, you could be fined up to £1,000 plus court costs.
You only need a TV licence if you watch or record TV as it's being broadcast or use iPlayer
A court fine is the amount of money someone is charged after considering how serious an offence is and how much money the offender can pay based on how much they earn. If they don't make the payments set by the court, further steps will be taken to collect the money.
If you have a court fine and can't afford the payments, phone or write to the fines officer at the court and ask if the payments can be reduced. It's much better to do this before you miss a payment.
Non-priority debts are those that still need to be paid, however they are not so urgent. This includes money owed to credit cards or your friends or family.
When you owe money to different people or companies, some debts are more important to pay off quickly than others. But if you don't pay these less urgent debts, creditors might take some further steps. They could get a debt collection agency involved or, in rare cases, even take you to court and make a judgment against you which could have an impact on your credit rating.
If you can’t pay off your monthly credit card instalments, you have some options. Your credit card company might be willing to lower or even stop your payments for a while, it depends on your situation. Speaking with them will help.
Also, try not to use your credit card for new purchases. Taking a break from using it can really help you manage and handle the debts you already have on the card. Always try to pay off credit cards with the highest interest rates first as this will help reduce the overall amount you pay.
If you can't afford to repay your credit card in full, you should see if you qualify for a 0% balance transfer. Find out more by watching this video from Martin Lewis.
Store credit cards are a type of credit that lets you buy goods in those stores and pay later. You get a card to pay with and the bill comes from the store card company later. These cards usually have higher interest rates and cost more in the long run if you don’t pay off your balance each month.
If you've got store cards, credit cards, or a personal loan, those store cards might be the priciest. It's smart to focus on paying them off first. Look at all the money you owe and start with the one charging the highest interest, it'll differ based on what you owe on each card. That way, you tackle the most expensive debts first.
Catalogue debt happens when you make purchases using shopping catalogues and don't pay off what you owe. If you don't clear the balance, you might end up falling behind and being in arrears.
You have the right to cancel your order within 14 days after receiving your order. You'll need to send back the items, and sometimes you might have to pay for the return postage. It can be better than keeping and paying for things you don't really want or need.
Borrowing money from family or friends might seem better than getting it from doorstep lenders or payday loans – and it usually is as, these lenders often charge high rates of interest. This means that the overall amount you pay back is much higher. With friends and family, you can likely agree a more flexible payment plan. However, it can get tricky if you can't pay them back and it may complicate your relationship if you struggle to repay what you owe.
A friend or family member can legally lend you money, but if they make a profit by doing so and charging interest they may be acting illegally. This type of lender is known as a loan shark, and they can’t get their money back by taking you to court.
If you owe money for your water bill, it's best to talk to your water company and agree a plan to pay it back. They can't cut off your water if you owe them money, but if you don't pay, they may take you to court.
Every water company has rules for supporting customers who owe money. You can get a copy of these rules, called a ‘code of practice’ by reaching out to your water company. Look for their contact details on your bill or visit their website. This code can help you work out a plan to pay back what you owe.
