The last few years have seen several turbulent times for many different people and for many different reasons.
With a cost of living crisis(1) the result of spiralling energy costs, bank rate increases, mortgage price hikes, and tax increases, the combined pressures of all of these factors combined can be too much for a growing number of people who seek help to work out the best plan of action.
One of the first pieces of debt advice people are likely to hear once it becomes clear that no matter how they restructure their finances or cut back, they are unlikely to be able to repay all of them is to pay back “priority debts” first, before focusing on high-interest debts or paying off smaller debts.
Priority debts are the ones that should be focused on first, as they have the most serious and significant consequences if they are left unpaid, such as having utility supplies cut off, losing your home or potential prison sentences.
As a result, it is worth taking some time to organise all of your existing debts and examine whether they can be considered priority debts or not.
It should be noted as well that any individual debt worth over £5,000 becomes a priority debt by default, as that is the minimum amount a creditor needs to start the bankruptcy process(2).
With that in mind, here are some broad categories of priority debts roughly in the order in which you should pay them, alongside the potential consequences, the debt collection processes a creditor may try and the potential options you have if you cannot pay.
If you rent your current home or have bought it with the help of a secured loan such as a mortgage, this payment needs to be your first priority, as the consequence of not paying it can be losing your home.
The actual process of eviction, however, involves the use of a possession order (3), which requires at least two weeks’ notice and a legal reason to do so.
In most cases, particularly with mortgage arrears, eviction is an expensive last resort, and getting in touch with your provider or landlord as soon as you can is the best first step to finding a solution, often in the form of a payment plan or change of terms.
If this does not work, seek urgent specialist eviction advice.
Not paying your council tax if it goes into arrears, not paying your TV license and being caught watching TV without one, and not paying court fines for committing crimes such as speeding are priority debts because if the court can prove you have chosen not to pay it you can go to prison.
Prison, it must be said, is the last resort, and courts will make every possible step before imprisoning someone first, from setting up payment plans, to sending bailiffs to collect the debt, to having hearings about potentially allowing the debt to be paid over a longer period.
Overpaid tax credits can also be claimed in the same way.
If you do not pay your utility bills or stop paying for goods bought on hire purchase agreements, your phone, electricity and gas supply could be cut off and your hire purchase products could be taken off you.
If you are struggling with debt as a result of the cost of living challenges you can contact the Fresh Start UK team today.
Money Helper has replaced the Money Advice Service and brings together the support and services of three government-backed financial guidance providers: the Money Advice Service, the Pensions Advisory Service and Pension Wise.