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Paying off debts
Which debts to pay off first
When you’re sorting out how to pay back
your debts, you’ll need to identify the priority debts. This will mean you
can use your available money to settle the most important debts first.
The most important
debts aren't necessarily the biggest
ones. Priority debts are ones where
serious action can be taken against
you if you don't pay what you owe.
Some examples of
priority debts, and the consequences
of not dealing with them, are listed
below.
If you don't keep up
with mortgage payments, the mortgage
lender can take legal action to take
possession of your house and sell
it, for whatever price they want. If
the price they get is less than the
remaining debt you'll still be
liable for the balance.
Rent
If you fall behind
with your rent, your landlord can
evict you (and still take you to
court for the money you owe).
Utility bills
Gas and electricity
companies can disconnect their
services to your home if you don’t
pay their bills. Even a phone bill
can be a priority if you need the
phone to help you earn your living.
Hire
purchase (HP) debt
Any debt should be
seen as a priority if what you’re
buying on credit (or ‘HP’) is
essential – such as buying a car you
need for getting to work.
Other priority debts
If any of the
following debts are unpaid, a court
could use bailiffs to come into your
home and take your goods away:
-
Council Tax or Business
Rates
- court
fines
-
maintenance and child
support payments
Your goods would
be sold to pay what’s owed. If,
after this, you still owe money,
there’s a possibility you might be
sent to prison.
You may not lose
your home or go to prison for
not paying ‘non-priority’ debts,
but you can still be taken to
court and ordered to pay what
you owe – often with extra costs
on top. If you still don’t pay
after you’ve been ordered to do
so, bailiffs can be used to
seize your property.
Examples of
non-priority debts include:
-
credit card or store
card arrears
-
catalogue arrears
-
bank overdrafts and
loans
-
benefit overpayments
-
money borrowed from
friends or family
-
non-essential goods
bought on hire
purchase (HP)
However,
any debt that results in
bankruptcy
proceedings is the highest
priority. Once bankruptcy
starts, any leeway your other
creditors gave you will
disappear as they try to protect
their debt from the other
creditors - it’s very important
to respond to any court claims
as soon as you can and get
advice.
Many organisations
offer help and advice. It’s
important to make sure you choose
one that will consider your best
interests - check that any advice
you seek is independent and free.
Some companies offer
to consolidate your debts, but
they’re doing this as a commercial
service, so only consider using them
if you’ve received independent
advice to do so.
The following
organisations will give you free and
independent advice:
National
Debtline
This charity has a
helpline for people in England,
Scotland and Wales, which offers
free, confidential and independent
advice on how to deal with debt
problems.
Citizens Advice Bureau (CAB)
The Citizens Advice
service can help you resolve your
legal, money and other problems by
providing free information and
advice from over 3,200 locations
around the country.
Consumer
Credit Counselling Service (CCCS)
The
CCCS is a charity funded by the
credit industry and provides
counselling on debt problems -
including personal budgeting and
advice on the sensible use of credit
Other organisations
Organisations such as trade unions
and churches often provide access to
trained debt counselling services
that can help you.
© Crown copyright 2005
The material featured on this page is subject to Crown copyright protection
unless otherwise indicated and has been provided by direct.gov.uk
Published November 2005
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