How To Select Which Debts To Pay Off First

If you are having problems with mortgage arrears, then you may also have other debts to repay. But how do you decide which ones to repay first? Most debts can be divided into priority debts and non priority debts, and you should repay the priority debts first.

Priority Debts
Your mortgage is a priority debt, because your mortgage lender can take you to court and repossess your home. So this should be at the top of your list of debts to repay. Even if you can't pay all of the amount owed, making a payment arrangement with your lender may keep a roof over your head. For the same reason, tenants should make their rent a priority payment. Talk to your landlord, and set up a debt management plan to help you get straight.

Don't forget to pay your utility bills, so that you have gas and electricity in your home. If you use your phone for work, you should also arrange to repay this debt. Hire purchase debt may also be a priority, particularly if the HP agreement is for an essential item such as a car. You might need that to get to work, so your car purchase agreement is also a priority debt.

If you don't pay your taxes, you can end up in court or have your possessions seized. This also applies to Council Tax, Business Rates, child benefit payments, maintenance payments and court fines. This is why your tax is another priority debt. Again, if you are unable to pay the full amount owed, contact the Tax Office to reach an agreement.

Non Priority Debts
Non priority debts are those which won't result in a prison sentence, or the loss of your home. However, you still have to repay them if you want to keep all of your possessions. Failure to do so could result in court proceedings and the seizure of some of your possessions by bailiffs.

Non priority debts include arrears on credit cards, store cards or catalogue accounts; benefit overpayments; bank loans and overdrafts; non essential goods bought on hire purchase; and debts to friends and family.

Once you have decided which debts to repay first, look at your budget and see how much money you have available for debt repayments. Then try to reach agreements with your creditors to pay a set sum each month. As each debt is repaid, you can increase the amount available for repaying the other debts until you have repaid all your debts in full. Remember to take advantage of the free advice and help available from the Citizens Advice Bureaux, Consumer Credit Counselling Service and others to assist you with your debt management programme.