One of the biggest financial challenges for many households in 21^st Century Britain is managing debt repayments.

The level of debt per household has been increasing sharply in recent years, and the problem has become far more acute in recent months as interest rates rise rapidly, and with them the monthly cost of repaying many variable rate debts also.

As a result, many more people are now facing decisions about which debts they can (or can’t) afford to pay. It is however worth noting that there is a significant difference between certain types of debt.  Broadly, debts in the UK fall into two groupings: “priority” and “non-priority.”

Priority debts

Priority debts are the more serious of the two groupings.  Priority debts can include:

• Mortgage repayments
• Rent arrears
• Loans (when secured against your home)
• Gas and electricity costs
• Council tax liability
• TV licence payments
• Unpaid child maintenance
• Unpaid tax or National Insurance
• Overpaid tax credits

Not making agreed payments towards these debts can lead to really serious problems for you and your family.  In the worst-case scenario, it could result in your home and belongings being repossessed, or even a prison sentence.  For a full listing of priority debts – and the possible outcomes of not paying each one – please see this useful page from the Citizens Advice website (click on each link for a full explanation of why this is considered a “priority” debt).

It is therefore extremely important that you do everything you can to meet these payments – as the name suggests, these debts should be your priority too!

The final point here, as the homeless charity Shelter point out, you should always prioritise your mortgage payments over other debts.  Keeping a roof over your (and your family’s) head is essential.

Non-priority debts

Other debts are likely to fall into the “non” priority debt pile.  These can include:

• Credit cards and store cards
• Catalogue debts
• Overpayment of benefits – apart from tax credits
• Money owed to family and friends
• Other “informal” loans
• Overdrafts and bank loans
• Water bills
• Unsecured bank loans

The consequences of non-payment here are less immediately severe, although non-payment is likely to harm your credit rating and could also result in court action.  It is possible that a non-priority debt could become a priority debt if the court order you to pay, and you do not do so.

If you are being taken to court over an outstanding debt, then it’s worth visiting this page of the Citizens Advice website which explains the process and things you may want to challenge.

Don’t panic!

As we mention in our “Four steps to financial health” videos, it is important not to panic.

Whilst debt problems can appear insurmountable, there are usually plenty of effective measures that can be taken to help avoid the more serious consequences mentioned above.

We would particularly point you towards the third video in the series, “Managing Debt”, which looks in detail at debt issues and provides useful options to consider and links to trusted and free-to-use support options should they be needed.

The key lesson is to take action to tackle your debts as soon as you can.  The quicker you take action, the less serious the outcome is likely to be.

This document is provided for information only and is correct at the time of writing (05/01/2023).  Links to websites do not indicate any endorsement of that website or service by Partners&.