Priority and non-priority debts – what`s the difference?

13 June2008

In general, the sooner you tackle your debts, the easier they’ll be to clear. But before you can tackle them, you need to understand them.

Different kinds of creditors can – if necessary – take different kinds of action to recover their money*. Do you know your priority debts from your non-priority debts?

Priority debts

Priority debts include:

Mortgage / Rent   Secured loans
County Court Judgments (CCJs)   Magistrates’ Court fines
Gas, water, electricity & telephone   Child maintenance
Council tax   Tax
VAT   National Insurance
TV licence
Essential Hire Purchase goods (e.g. washing-machines, cars)
Certain overpayments for benefits & Working / Child Tax Credit

If money’s tight and you can’t keep all your creditors happy, it’s vital to set aside enough money for your priority debts before you start paying your non-priority debts.

Your priority debts are the most important ones. If you can’t keep up with them, you might have your gas / water / electricity supply turned off, or even lose your home. You could even be imprisoned, although this is extremely unlikely.

But debt problems aren’t always what they seem. If you’re having a hard time making your mortgage / rent payments, for example, it isn’t necessarily because they’re too large – it could be because your non-priority debts are taking up too much of your monthly income. Depending on your situation, a debt solution like a debt management plan, debt consolidation loan or IVA (Individual Voluntary Arrangement) could help you reduce your monthly outgoing to your non-priority debts, freeing up the funds you need for your priority debts.

Non-priority debts

All your other debts are known as non-priority debts. This category includes:

Credit / store cards   Overdrafts
Unsecured loans   Catalogue debts
Credit agreements   Conditional sales agreements
Non-essential Hire Purchase goods (e.g. TVs, stereos)

The term ‘non-priority’ doesn’t mean you’re not legally obliged to pay them back, and it doesn’t mean your creditors won’t expect repayment. But it does mean that these debts are less important than your priority debts – and that your non-priority creditors are limited in terms of what they can do if you don’t.

Non-priority creditors can’t just repossess your home or call in the bailiffs. What they can do is take you to court.

If they start talking about court action, remember...

  • Going to court can cost you a lot of money and be bad for your credit rating. What’s more, it can be lead to serious consequences – once you’ve been to court, a non-priority creditor might be able to:
    • have the debt secured against your property (turning it into a secured debt),
    • have bailiffs sent to your home,
    • have money taken from your wages and paid directly to them.
  • However... The courts aren’t there to punish you; they’re there to settle disputes and lay down reasonable solutions that respect both sides. Plus, in the majority of cases a creditor would rather come to an agreement with you (like accepting lower payments for a while, for example) without involving the courts at all.

*Whatever kind of debt you’re dealing with, you should have plenty of warning that one of your creditors was considering any legal action. As long as you talk to a debt adviser as soon as you feel you’re running into financial problems, you should have time to take action and sort your debts out before it gets serious.

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Tags: priority debts, non priority debts, priority, non priority

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