Step 3: Identify your priority debts

Priority (urgent) debts Back to top

If it has become difficult to pay all of your creditors, it may be useful to start making a list of your financial commitments. It’s also a good idea to contact your creditors as soon as possible to tell them about your current circumstances. Any credit agreements or debts you have are split into two groups: priority and non-priority.

Priority debts are the most urgent debts you need to pay. You should take action with these debts as soon as possible. Otherwise, serious action may be taken - for example, this could include the repossession of your home if you don’t meet your mortgage repayments. Our list of useful organisations contains organisations that can help you negotiate with creditors about your priority debts. 

The following types of debt would be classed as priority debts:

Once you have identified a priority debt, you should take immediate action. Contact your creditor(s) to make them aware of your current financial situation.

If you have no disposable income available to make an offer of payment and are still in the process of sorting out your finances, you could request that no further action is taken until you have had a chance to do this. It’s important that you seek appropriate advice during this process to ensure you maximise your own or family income.

Non-priority debts Back to top

Non-priority debts are less urgent. Non-priority debts are those where non-payment should not result in the loss of your home, essential needs or services. You still need to reach an agreement with these creditors if you can, but the risks of non-payment are not as serious.

The following would be classed as non-priority debts:

• Credit/store cards You could face court action for failing to pay these. However, your bank can take money from other ‘linked’ accounts, so it is advisable to make sure you have a clean bank account with no associated debts. 
• Overdrafts You could face court action for failing to pay this. A bank can take any money in your account to repay the debt. To have more control over the repayments, it’s a good idea to open a neutral account and transfer some money into this account before contacting the bank about your debt.
• Catalogues/mail order You could face court action for failing to pay for items purchased through these.
• Unsecured loans You could face court action for failing to pay these.
• Personal loans If you have loans from banks or finance companies, you could face court action for failing to pay these.
• Water rates You could face court action for failing to pay your water bill.
• Benefits overpayments These could be deducted from your benefit entitlement.
• Tax credit overpayments These could either be deducted from an ongoing entitlement if you still receive a benefit or you could face court action.
• Hire purchase/conditional sale (non-essential goods) These goods may be repossessed.

You’ll need to prioritise your debts before contacting each creditor individually to make an offer of payment that’s based on what is satisfactory for the creditor and realistic for your budget. They may be willing to accept a lower payment or no payment for a period of time.

It’s always useful to ask creditors to stop adding interest or other charges and to not take any further action while this payment arrangement is in place. If you don’t keep to the repayment schedule, it could result in further action being taken by the creditors and further costs.

County Court Judgements Back to top

Many creditors may threaten county court action if you fall behind with payments and are unable to pay the suggested amounts. If the debt is pursued through the county court, the financial statement will be very useful for you to identify your available income.

In most cases you won’t have to attend a court hearing and it will be dealt with through the post. Most judges are quite sympathetic, and you will not be asked to pay more than you can afford. If you have completed your budget accurately, the court will usually write to you and ask you to pay what you have offered.

Debt collection agencies Back to top

Creditors can employ debt collection agencies to collect debt on their behalf, or they may sell your debt to these agencies.

This means debt collection agencies may contact you about money you originally owed elsewhere. Collection agencies can also sell your debts to one another, which can make it even more confusing for you. It can be difficult, but you need to keep track of who each debt is owed to. It’s important to remember that debt collection agencies are not court officials and don’t have the same power as bailiffs.

It’s important to remember these debts remain non-priority. Some of these agencies can make you feel threatened. They may even be connected to a firm of solicitors, which makes them sound very official. This doesn’t give the agencies any extra authority or make their debts a higher priority. Whatever they want you to believe, these agencies have no greater powers than the original creditor.

Be careful to treat all of your creditors the same. It’s essential to pay them all a fair share from the money you have available. Don’t make a big payment to just one or two creditors. If any creditor feels they are being treated unfairly, they may be less ready to make an agreement with you.

You can create a table like the one below to make a list of your non-priority debts. Remember to update it regularly. Amounts can go down if you make regular payments that are large enough. Likewise, your debt can actually go up if you make smaller payments (eg if they don’t cover the accruing interest) if the interest rate increases or if you’re charged for late payments.

Keeping track of your non-priority debts

 

Non-priority debt(original creditor)	Amount owed	Agreed payment (weekly or monthly)	Transferred to (use this column if your original debt is sold on to collection agencies)