How to Prioritize Debt Payments

Paying off debt is, and always has been a lot more complex than balances.

Priority debts should be paid first, which are mainly the debts that could land you homeless or in prison; things like council tax and tax bills are the first debts that you should consider paying.

A second priority should be rent or mortgage, other secured debts, electricity, gas and water, as these are basic essentials that could potentially leave you without essentials, or even without a home in extreme circumstances, especially in the commercialised private sector.

It’s then down to sorting the unsecured debt, which will see you in less hot water than the above, and this again is not as simple as it may seem. This will include credit cards, loans and overdrafts.

The most important thing to remember is that any cards, loans or overdrafts that are currently over the limit should be paid below the limits paid, with the minimum payments, or even a ‘token’ payment after this. Once everything is below the level, the real debt busting begins.

The first thing to consider is whether to open a basic bank account with a completely unrelated bank. This will stop banks using the ‘rule of offsetting’ on any outstanding finance, which is an account to have any wages or benefits (or a mixture of both) paid into. This means that the bank cannot take money from savings etc. and pay off the balances. It’s important to specify a basic bank account, in order for there to be no chequebooks or overdrafts, so you are not borrowing further.

Start with paying minimum payments on everything, leaving a modest amount for other expenses, such as food, rent and bills. It’s then important to start with priority debts, then those debts with the highest interest rate. If you have £5,000 on a 50% APR card, it is £1,750 cheaper per year to pay than the same amount on a 15% APR card, leaving you this money to clear the debt faster. It is also worth writing a list of all the debts you have, in interest rate order, so that you are aware that nothing is left out.

If you have any doubt on any of the above, contact a free debt counselling agency to advice you further. They can offer more specialised advice tailored to your situation, and finally, good luck with clearing your debt.