Which debts do I pay off first? Choose Wisely's guide to prioritising debts
- Get your personal finances organised
- What are priority debts?
- What are lower priority debts?
- Pay off the most expensive debt first
- What to do if you’re behind on your priority debts
- Should I get a debt consolidation loan?
- Final Word
Get your personal finances organised
One of the first steps to getting your finances, and particularly your debts, sorted is to first have a look at your spending and income. Gaining an overall view of where your money is going will help you understand how much you spend on credit repayments. Have a look at our budget planner to get you started.
What are priority debts?
Once you’ve used the budget planner, jot down your current debts, how often they need to be paid and how much they cost.
General rule of thumb is: if you can’t live without it, make sure you pay it. This means rent/mortgage payments, electricity, gas, water and food. We’ve given you a breakdown of the priority debts and what can happen if you don’t pay them:
Mortgage Payments: Your mortgage is the most important bill to pay. If you don’t, your home could be repossessed. There is help available for those unable to make full repayments and you can find out more in our guide.
Rent: Missing a rent payment means you’re in ‘arrears’ and you could end up being evicted from your home or even receive a visit from bailiffs.
Council Tax: The consequences for missing a Council Tax bill can be pretty severe, including imprisonment in extreme cases. If you’ve missed a payment contact your local council and ask for a payment plan.
Magistrates Court Fines: It is very important you pay these fines as you could face going to prison. If you can’t make full repayments, you could get these reduced by contacting your local Court Fines Officer.
Tax, VAT or National Insurance: HMRC would have contacted you if you owe them money and you can face serious consequences, like a court order, if you don’t pay them back. Usually, your employer takes care of this but it's worth double checking they have all the right details for you.
County Court Judgement (CCJ): Missing a CCJ repayment can be a big problem; it’s designed to be a financially manageable programme to help you out of debt. There’s a big chance the repayments could be taken from your wages or benefits.
Gas and Electricity Bills: Your provider has the right to disconnect your gas and electricity supply if you don’t make a payment 28 days after your bill was issued. However, they will usually contact you to offer a prepayment meter or payment plan if you're struggling.
What are Lower Priority Debts?
We are not suggesting you should completely ignore your lower priority debts but it’s important you protect your life essentials like a roof over your head. Usually, your lower priority debts providers can be a little more understanding about your situation.
Not paying these bills/debts is generally less serious than avoiding the priority debts mentioned above but the consequences shouldn’t be taken lightly:
TV License: You could receive a fine of up to £1,000 if you miss a license payment.
Credit card debts: Usually, you will be charged a fee per day you are overdue. The terms of missed payments should be covered in your agreement with your provider. If you continue to miss repayments, bailiffs could be sent to your home.
Loans (inc. payday, rent-to-own, unsecured, etc.): Missing or avoiding these debts can get expensive as interest or late repayment fees could be charged everyday you are overdue. Often, bailiffs get involved in these instances.
Water and Sewerage Bills: You cannot be disconnected from your water supply but you should contact your supplier if you’re struggling to make payments. If they threaten you with disconnection, contact the Consumer Council for Water.
Loans from friends and family: If you owe money to friends or family, talk to them about your financial situation and see if you can agree on a more affordable repayment plan.
Pay off the most expensive debt first
The worst thing you can do with your credit repayments is ignore them! It can feel like the easy option but it will make things much worse and more expensive in the long run.
If you can only afford to pay some or part of your repayments, search for the ones that will cost you more if you miss them. For example, if you have a credit card with 34% interest and a guarantor loan with 49.9% interest, pay the guarantor loan repayment first. You can then contact the provider of your other credit and negotiate a repayment plan.
If you're making early or over payments on your credit, you should have a look at your credit agreement to check if you need to pay any early repayment fees. Make sure you factor this in when prioritising your debts.
What to do if you’re behind on your priority debts
If you’re feeling overwhelmed by dealing with debt, get free financial debt advice from any of the debt charities/agencies below. The longer you leave it, the worse it will get. If you’re frightened about communicating over the phone, there are other options available like live webchat or email.
- Money Advice Service - 0800 138 7777
- Stepchange - 0800 138 1111
- Debt Advice Foundation - 0800 043 40 50
- National Debtline - 0808 808 4000
- Payplan - 0800 280 2816
- Christians against poverty - 0800 328 0006
- Debt support trust - 0800 085 0226
- Business Debtline - 0800 197 6026
- Citizens Advice Adviceline - 0300 330 1313
Should I get a debt consolidation loan?
Generally, if you’ve defaulted on repayments, your credit score will reflect this negatively. Meaning, when you go to apply for a new loan, you could be facing a higher interest rate than the market average. This could cost you way more than the total amount of interest you pay for each of your individual debts.
Use our debt consolidation guide to find out if this is the right option for you .
If you’ve fallen behind on payments, some creditors might chase you more than others. This doesn’t mean they’re the people to pay first. Stick to paying your priority debts. If your situation seems hopeless, remember there are always solutions. The sooner you act, the easier your situation can be salvaged so don’t suffer in silence.