Debt can be a nightmare. Everyone has it, but lots of people can keep it under control. When things spiral out of control, debts can get overwhelming. You risk facing all kinds of severe consequences and fees keep adding up. You find it impossible. While talking to an adviser is certainly a plus, learning more about debts will also help you make more informed decisions.
Understanding what priority debts mean
When dealing with debts, you need to take them in a certain order and annihilate one at a time. Some debts are more important than others because of their potential consequences – these are the so called priority debts. They may not be the biggest debts though and they may not have the highest interest rates – their consequences dictate their overall importance.
Priority debts could include court fines, TV license debt, gas and electricity bills, rent or mortgage, council tax, child maintenance, VAT, income tax or national insurance and hire purchase agreements. If you face such debts, consider the potential effects associated with any of them and find out what is the worst that could happen.
Why you need to focus on priority bills
Failing to pay your priority bills could lead to various issues. For instance, you could end up with annoying visits from bailiffs. You might end up with court summons, meaning things are escalating. Fail to pay your bills and disconnection will inevitably kick in too – no more lighting or heating. When these debts target your rent or mortgage, you could lose your home too.
In the worst case, you could be made bankrupt. Creditors and other institutions are trying to take everything off you, but there is not much to grab. There are, of course, a few things they may not take. Since they still cannot recover their money, you will be declared bankrupt – you can also file for bankruptcy yourself.
What non priority bills involve
Non priority bills and debts are just as harsh, but the consequences are less serious. You will still be able to keep your home and you can still have lighting and heating. Bailiffs may end up knocking on your door or you could end up in court. You can also try to negotiate a deal and keep firm – they will try their best to gain as much as possible from you.
Non priority debts can go in more directions. For instance, overdrafts go in this category. Personal loans (not secured against an asset that you could lose) are also considered non priority. Loans and money borrowed from family and friends go in the same category, as well as payday loans with no credit check and store card debts. Catalogue debts are just as common.
Water and sewerage bills are often considered to be non priority debts. However, you should see them in a different way. They should be seen as priority bills because they affect your household, comfort and convenience. They represent a continuous service that you must pay for. In other words, the debt will keep going up even if you fail to pay for it. Sooner or later, someone will knock on your door.
As a short final conclusion, debt can be challenging and difficult to deal with, but planning is critical to avoid it. Seeking professional help – free advice usually – is essential, while knowing the difference between priority and non priority bills is just as good. A bit of education will point you in the right direction and help you annihilate bills one after another in the right order. Your bank may also provide access to an advisor when in need.