I don't know what debt to pay off first, how do I prioritise?
Summary: This article aims to help identify which of the monthly expenses should be considered a priority.
One of the first steps in tackling financial problems is to prioritise outgoings and set up a budget. By prioritising, an individual is able to bring some control back to their monthly expenditure; therefore it is important to understand the potential implications of non payment.
• Mortgage/Rent. The most important expense that must always come first is the mortgage repayment or rent. By falling into arrears, it is possible that an individual could lose their home.
• Secured loans. These are often secured on a property, so non payment could result in the individual’s home being repossessed.
• Utility bills. Non payment of gas, electricity or water bills can result in the service being cut off. This could result in life threatening conditions, especially in the winter. If not already set up, paying by monthly direct debit is an excellent way of budgeting for these bills, and avoid large bills.
• Council tax. As with any tax, it is important to keep up with the payment, otherwise the individual could find themselves faced with a court order. However, when faced with severe financial difficulties, it is always worth speaking with the local authority as they may be able to help.
• Maintenance and/or child support. Failure to pay the required amount could result in a visit from the bailiffs to seize goods to the value of the debt.
• Credit cards, overdrafts and unsecured loans. More often than not, individuals will focus on repaying debt before they have paid the essential monthly bills. This can result in consequences as above. While debt repayment is important, it should not result in having no heating or losing a home. If there is an issue with repaying such debt, it is always worth contacting the creditor to discuss the issue. They may be able to freeze the interest, or offer other help.
I have prioritised and set up a budget but my income is not covering my monthly outgoings, what can I do?
This situation is known as being insolvent, where an individual is unable to cover all essential expenditure and debt repayment with their monthly income. If in this situation, it is vital an individual seeks advice as soon as possible. There are numerous free services available, such as the Citizens Advice Bureau (CAB), National Debtline or the Consumer Credit Counselling Service (CCCS). There are also some very effective fee based services available, which will also be able to assist in setting up a Debt Management Plan (DMP) or an Individual Voluntary Arrangement (IVA).