Which Debts Should You Make Repayments On First?
When you're struggling to meet all your debt obligations, it's a difficult task to juggle your repayments and it might well be the case that you need to prioritise which debts you pay first. It might seem sensible to focus on paying the most expensive debts first, as these will be the greatest drain on your finances, and getting them out of the way will ease your situation.
This is certainly true if you have enough money to make all your repayments on time, and especially if you can allow a little extra for your most expensive debts, but when you're struggling you need to approach things differently and decide which debts have the highest priority. The simplest way to decide this is to look at the effect non-payment would have.
Don't Risk Your Home
For example, if you don't pay your mortgage or rent, you will invariably end up losing your home. This is obviously a serious outcome, and so any mortgage or rent arrears should be given your highest priority.
Likewise, tax debt can lead to bankruptcy and even imprisonment, and so should also be a high priority debt. Utilities such as gas and electricity will be cut off if you don't pay, making life very difficult, so try to come to an arrangement with your suppliers to ensure that this doesn't happen.
Safeguard Your Employment
You should also do all you can to keep up repayments on things that you rely on to earn a living, such as car finance or hire purchase for tools or office equipment.
Non-Priority Debts
Other debts such as credit card accounts and overdrafts are usually classed as non-priority. This doesn't of course mean that you can ignore them with impunity, but non-payment will not result in you losing your home or being imprisoned. Court action will certainly follow if the debts remain unserviced for an extended period, and this can be followed up with bailiff action if you still don't pay. Eventually, bankruptcy proceeds could follow, but it will take time to get to this stage, so other more urgent debt repayments should be made first.
To summarise, it's not always the biggest or most expensive debts which are the most important to keep up with. Instead, you need to look at the impact of non-payment of each debt, and focus your attention accordingly.
Related Articles:
- Full and Final Settlement of Debts
- Debt Survival Strategies
- Why You Should Tell Your Creditors About Your Debt Problems
- Who Can Help With Debt?
- Debt Priorities
- 5 Steps To Fighting Debt
- Don't Ignore Your Debts!
Site is for information only and does not constitute financial advice. E&OE.
