How to prioritise your debts

By: admin

How to prioritise your debts

Very little can come close to the miserable feeling of putting your hand in your pocket and feeling nothing but leg. Other than illness, being flat cold broke sucks and blows to coin a phrase from Bart Simpson.

When debt rears its head, we bury ours straight into the sand, or worse the bottle. The first step to resolving your debt problems is to acknowledge that you have a debt problem.

We are not going to discuss here how to avoid getting into debt, we are going to discuss what to do when we find ourselves surrounded by bills, demands, fines and the phone is ringing off the hook with companies, taxman, bailiffs all demanding payment.

It can feel like a soul crushing situation to be in but think of debt like climbing a mountain. This is your Everest for you to conquer and when you do conquer it you will be invincible and will never find yourself in this situation ever again.

So, go make yourself a cup of tea, come back settle down with a pen, notepad and we will start to sort these problems out once and for all.

Read to the very end and don’t skip any steps. Let’s climb Everest.

Make a list of your debts

First step is to make a list of all the people and companies you owe money. You can list them in any order you desire but we recommend that you list them order of importance. For example, if you owe the court fines or Council Tax then those go in as priority debts,  if you owe money a magazine subscription although we will put that down too but it is not as important as court fees, nothing will be left out. There will be three classes of debts

  • Priority debts
  • Non-priority debts
  • Debt emergencies.

What is a priority debt?

These are the types of debts which will have the most serious consequences if you do not pay them off. These debts are not the largest or the ones which carry the most interest but are the ones which will cause you the most problems and include the following:

Priority debts include:

  • Court fines
  • Council Tax
  • TV Licence
  • Child maintenance
  • Gas and electricity bills
  • Income Tax, National Insurance and VAT
  • Mortgage, rent and any loans secured against your home
  • Hire purchase agreements, if what you’re buying with them is essential.

What is a non-priority debt?

All debts are serious but non-priority debts do not carry the same severity as priority debts. These are debts which the creditor has not yet taken court action against you to recover the money owed, but they could eventually do so.

Your non-priority debts include:

  • overdrafts
  • personal loans
  • banks or building society loans
  • money borrowed from friends or family
  • credit card, store card debts or payday loans
  • catalogue, home credit or in-store credit debts

What is a debt emergency?

If you’re facing a sudden emergency, such as:

  • court action
  • bailiff action
  • disconnection
  • eviction for mortgage or rent arrears

If you are facing a sudden debt emergency such as those listed above, we recommend that you seek independent debt advice urgently. The debt advisor will be able to speak with the court, bailiff or other creditor on your behalf. At this point you will want someone like a debt advisor to negotiate for you if possible.

List your income and expenses

Now that you have made a list of the debts and the amount of each debt. The next thing to do is to list your income/s after tax.

Next list all your expenses with a value next to each expense, these can be as follows (This list is not exhaustive, add your own, check your bank or card statement to see what you are spending on)

  1. Food for household
  2. Food for lunch
  3. Fuel
  4. Fares
  5. Clothes
  6. Insurance
  7. Medical Bills
  8. Taxes
  9. Website Subscriptions
  10. Offline Subscriptions (Magazine)
  11. Phone contracts
  12. Internet
  13. Club memberships
  14. Gym subscriptions

Note: Use Excel to make the list

Once you have listed all of your expenses you’ll need to high light which can do without, for example do you really need the gym, club memberships or the expensive phone contract, are there are cheaper deals out there.

Contact each one of the companies you have memberships or contract with and tell them your situation and you that you simply can no longer afford to pay for the membership.

If you are sincere, they will understand most probably cancel the contract. No company likes bad publicity and certainly not if the publicity is coming from someone who is in financial trouble.

Make a record of all telephone conversations and if you can get it in writing that the contracts have been cancelled. You must keep a log of everything you are doing to reduce your outgoings, the reason will become clear later.

Time is Money

Determine if you can work extra hours or take on a second job in the evenings or over the weekend. Even if you do not find anything keep a log of your efforts. Have a folder on your computer where you can save all the confirmation emails for all job applications.

Use as little electricity as possible.

This does sound like we are going to extremes, but again there is a reason for this. Unplug the television in the night, turn off any electrical appliances that you are not using. This includes computers, porch lights. DVD player. The only appliance you really need to have constant electrical supply 24/7 is the fridge.

The reason we are doing this is if you have a smart meter your electricity supplier will see that your consumption has reduced. When speaking to them to rearrange payments you are demonstrating that you are doing everything to pay off your debt.

Gas and electricity companies cannot cut off your supply unless they have first offered you a range of payment methods to help you pay.

Electricity suppliers must give you seven working days’ notice in writing that they are going to disconnect your electricity supply because you have not paid your bill.

Time to negotiate with your creditors

Priority Debts First

Armed with your list of income and expenses you will now need to contact each of your creditors one at a time and show them your list and show them what you have done to reduce your expenses. Show them the evidence that you have cancelled various memberships and subscriptions.

Show them that you are now working extra hours, or you have taken on an second job in the evenings or weekends, it does not matter what the job is, if you are a company executive and have to take the midnight shift in the local supermarket then that’s what you do.

  • Being visited by bailiffs
  • Receiving a court summons
  • Having your heating or lighting cut off – due to unpaid bills
  • Being made bankrupt – because you haven’t paid your bills
  • Having your heating or lighting cut off – because you haven’t paid your bills
  • Losing your home – because you’re not keeping up with mortgage or rent payments.

This is evidence that you are serious about solving your debt problems. A reasonable creditor will understand that realistically you are able to pay but over a longer period of time and if you ask them they will rather have something rather than nothing, but if you find that a creditor is not being reasonable and is demanding payment in full we recommend that you move onto the next one.

Remember that you must keep logs for every call, every letter and every e-mail. If you have a smart phone install apps to record your calls. Always remain calm on the phone and be reasonable.

Once you have contacted all your creditors and negotiated better repayment terms return to the original unreasonable creditors and ask them again to reconsider the repayment terms, show them that your other creditors were willing to be considerate.

If again the creditor demands payment in full and is threatening to take you to court then so be it, you have all the evidence that you were being a reasonable and making offers to pay. The court will be more favourable towards you when they see the efforts you have gone to resolve your debts. 

Non-priority debts faster

Once again just like your priority debts you must contact all the creditors of your non-priority debts. Now you are armed with all the re-negotiated debts from the priority debts.

Same tactic as the priority debts, show them what you can afford to repay each month and ask them to come to reasonable repayment terms. Negotiate for the minimum amount possible, understandably it may take you longer to repay but you are repaying and once you start repaying the demanding letters will stop

You must contact the creditor with the highest interest rate and fees first and work your way down the list. If you can consolidate the debts into one debt that could be an option. Target the most expensive debt first.

The important point here is to be as transparent as possible with everyone. The person on the other end of the phone is a human who has the same money worries as you and will try to help, it’s in our nature to want to help others and if you demonstrate that you are doing everything you can to resolve the problem then they will do everything they can to help you to achieve that.

Get free advice about dealing with debts

There are lots of places you can contact to help you resolve debts problems but all the advice in the world is pointless unless you demonstrate that you are doing something yourself or your creditors will never believe you and they will not want to help you.

Remember people love to help people but to a point.

The following sites will help you further with debt advice:

Many people say they feel better after having spoken to someone about their debt problems and even better once they take action to address their debt problems.

You are not alone, many people in the U.K struggle with debts and many do not know how to start to repay them speaking to a debt advisor is one of the best things you will do along with taking action yourself by speaking directly with your creditors.

https://www.nationaldebtline.org/ and https://www.moneyadviceservice.org.uk

You should always seek professional advice when handling debt problems. Cashute are not licensed debt advisers and any information contained in this article should not be taken as legal advice. It is your Responsibility to seek out correct legal advice

Related post

Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk