You should aim to pay off all the money you owe in the best way you can, but some debt takes priority over others.
In this quick guide, we explain priority and non-priority debts – and the consequences of not paying them off. And if you need more information, money advice charities are always just a call away!
What is considered priority debt?
A priority debt is a debt that you should prioritise to pay off before paying back non-priority debts. This is because the repercussions of not paying priority debts are harsher, and in some rare cases can end in eviction or a short prison sentence.
Examples of priority debts
Most priority debts are when you owe money to government departments or court fines. Priority debts include:
- Council tax arrears
- DWP credit overpayments
- Gas or electricity debts
- Unpaid child maintenance
- Unpaid VAT, National Insurance and income tax
- TV licence debts
- Internet and landline debts
- Secured loan debts
- Hire purchase debt
- Mortgage arrears (the bank could have you evicted!)
- Rent arrears
- Court fines
What is a non-priority debt?
A non-priority debt is a debt that you should aim to repay, bholdut not before any priority debt. Not paying a non-priority debt can still result in serious consequences, such as a County Court Judgment (CCJ) and the use of enforcement agents. But the consequences of priority debts tend to be less serious.
Examples of non-priority debts
Only after dealing with priority debts should you start to use disposable income to pay back non-priority debts. Common examples of non-priority debts include:
- Credit card
- Water bills (water suppliers cannot turn your water off in any situation)
- Store card debts
- Unsecured payday loans
- Parking tickets
- Catalogue debts
- Benefit overpayments (excluding tex credit payments)
- Any money you owe to family or friends
What debt should you pay off first?
You should always arrange to pay back priority debts before you arrange to pay back non-priority debts. For example, if you owe council tax arrears and you owe money to a payday loans creditor or on credit cards, you should pay back the former before either of the latter. Unpaid council debt could land you in jail for up to 90 days, while that is not possible for non-priority debts.
If you need help working out what are your priority and non-priority debts, you should search for and contact a debt advice charity for free help. Citizens Advice and the Money Advice Service are known to help with these questions.
If you have multiple debts from the priority category, such as a hire purchase agreement on a car, mortgage arrears and/or gas and electricity debt, you should prioritise all of them. You could ask for debt advice from a charity to help you do this.
Ask non-priority creditors to freeze charges
If you have priority and non-priority debts and are coming up with a plan to pay the more urgent money owed, you might want to ask non-priority creditors to freeze interest and charges in the meantime.
You could use our free letter template to send to a creditor asking to hold action on your account while you seek money advice and deal with the more urgent arrears.
What happens if you ignore non-priority debts?
If you ignore non-priority debts, your creditors could take you to the county court.
You can fight back by explaining to the court that you were trying to prioritise the more urgent arrears.
If the judge agrees you owe the creditor money, they could issue a County Court Judgment (CCJ), making you liable to make full payment or agree to a payment plan. If you agree to make payments regularly, you should work out your budget so you do not overcommit to payments and get into further debt.
If a CCJ is issued and you still don’t agree to pay the money, the creditor can enforce the debt by using bailiffs, charging orders or attachment of earnings where payments are taken from your wages before they hit your bank account.
Check your creditor followed the correct process
If you’re being taken to court because of a debt, you should check to make sure the creditor followed the correct process. If they didn’t get their admin in shape, it could backfire and work in your favour.
You should have received:
#1: Notice of Default
This is a letter to notify you that your account is in arrears and you need to take action. They must give you a minimum of two weeks to repay what is owed. Within the letter, you should also receive a fact sheet from the Financial Conduct Authority.
#2: Letter of Claim
If nothing is agreed upon after the default notice is sent, they should then issue a letter of claim showing their intent to begin legal proceedings. They must give you 30 days to reply by either stating that you agree that you are liable for the debt and to agree on a repayment plan. The letter must also include contact info for organisations that can support you through the process.
#3: Claim Pack
If no agreement is made after the letter of claim, the creditor/company must then send you a claim pack. This is a set of four documents for you to complete in preparation for court action. Sometimes creditors try to cut corners and go straight to this part of the process. If they do, you can apply for their claim to be set aside and cancelled.
Setting a claim aside is complex and best done with the assistance of an organisation or free charity.
I’m still confused, what now?
If you are still confused about priority and non-priority debt, you should contact advice charities for money advice and support.
The very best will help you deal with all types of creditors and come up with a plan to pay off your personal loans, secured loans, credit cards and any other type of arrear you may have.
And MoneyNerd is always packed with valuable information for all debtors. Come back soon!