If you are in debt, it is always prudent to be in contact with those you owe money to (your creditors). When you are worried, you might get afraid to contact them but they will never know you are facing financial problems. This in turn leads to them (creditors) thinking that you want to default on payment and start taking action against you.
Before you start contacting your creditors, you need to know properly know how much you owe each one of them. Then sort out which ones are most urgent.
Some debts are considered more urgent than others since lack of paying them can lead to serious action being taken against, you some of which may be court proceedings. These are known as priority debts and include things like mortgage, council taxes, rent etc. The people you owe these kinds of debts are known as priority creditors.
You will need to check how much money you got to repay your debts. The easiest way to do this is by knowing how much money you’ve got coming into your household and how much you spend.
What are these priority debts?
Some debts are more urgent than others because the consequences of not paying them can be more serious than for other debts. These are known as priority debts. Priority debts include:
• Mortgage. If you don’t pay your mortgage, you could lose your home
• Rent. If you don’t pay your rent, you could end up in problems with your landlord or house agents
• Council Taxes. Failure to pay these may lead to a court of law using bailiffs to take your possessions.If, after this, you still have unpaid arrears, you can be sent to prison.
• Electricity. If you fail to pay your electricity bills, you can have your supply disconnected
• Court fines e.g. fines for traffic offences. If you don’t pay these, the court can use bailiffs to take your goods. If, after this, you still have unpaid arrears, you can be sent to prison.
• Child support/maintenance. This is payable to an ex-partner or their children. This includes child support you owe. If you don’t pay these, a court can still use bailiffs to take your goods. If, after this, you still have unpaid arrears, you can be sent to prison
• Income Tax. You can be sent to prison for non-payment of income tax or VAT.
You may have other debts which you think are particularly important to pay. You need to think very carefully about which debts you treat as the most important ones. You must have very good reasons, as you might have to convince a court or your other creditors why it is reasonable for you to treat these debts as more important than others.
Creditors may take further action against you if they feel you are treating another creditor more favourably, without a good reason.
Once you’ve sorted out your finances, if you can’t afford to pay anything to your priority creditors and your situation isn’t likely to get better, the outcome may be very bad. You should get advice straight away from a debt adviser. An adviser will be able to help you work out what is the best thing to do in your situation. Tell the creditor that you are getting advice and will contact them as soon as you can. Ask them to stop further action for a few weeks while you get advice.
More advice on how to deal with debts coming on my next post.