Are you worried about the debts that you owe to your creditors? Then, you must apply a simple strategy to sort it out, and that is known as prioritizing your debts. The term actually means giving one single debt the utmost priority. The rest of them will be followed after one another.
Before prioritizing a debt, make sure you first know the nature of the debt. After that, you should get to know all the necessary details, one after another. One more thing, the deadline of the priority debt plays one of the most important key roles. So, let’s learn how to prioritize your debts.
What are Priority Debts?
Priority debts are the result of most of the negative consequences when you fail to pay them. A priority debt doesn’t have to be of greater interest rates or the amount. If you don’t pay them, it will eventually become a priority. A few types of debts are given below that must be taken into consideration and given the most priority:
- Fines that belongs to the court
- Council tax
- Fees for TV license
- Maintenance costs of children
- Electricity, gas and water bills
- Income Tax
- National Insurance
If you have borrowed money from the HMRC, then it’s apparent that you have to give this debt utmost priority. HMRC belongs to the government of the UK. So, not caring about this debt might lead you to critical situations.
Priority Debts: Consequences of not paying it
If you know how to prioritize your debts but delay paying it, the consequences will be devastating. Here are some facts that you must know before building up a priority debt.
- The visit of bailiffs
- Receiving orders from the County Court
- Losing of assets
- Discontinuation of water, gas and electricity
- Making yourself a bankrupt
With zero mental peace and life full of tension, it’s not the legitimate way to deal with the debts. The debt that you are giving the topmost priority must be given back as soon as possible.
Methods to Prioritize your Debts
Now, coming to the ultimate answer that will be helpful for you. Follow the steps carefully that are given below and do it accordingly.
Deliver the maximum amount
When one of your debts has the topmost priority, then you should focus on that and pay as much as you can. Make the maximum payment so that the debt will be written off as quickly as possible. On the other hand, assign the top priority to those kinds of debts that have the power to create a barrier in your livelihood.
Talk with the creditors
Apart from the priority debt, when you are having other debts, talk to the creditors and ask for some concession. In addition to that, you can also request an extension of the deadline. In time, you will be able to focus on the primary debt that has got the most priority.
Debts related to the legal matters
Involving some of the functionalities of the UK government is generally called the legalization. That is why you have to give the topmost priority to such kinds of debts that have some legal functionalities in it. If you don’t do it, then the creditors might attempt to take legal actions against you.
The Rate of Interest
Obviously, only you will get to know how much interest you need to pay. So, make sure that you first calculate every interest rate for each pending debt. After that, give the most priority to the one which is having the highest interest rate.
The Snowball Strategy
Fortunately, a lump sum amount of extra payment might get added to your books of accounts. You can use it for repaying the debts. Immediately inform the creditors, make the necessary calculations and then pay them.
The Snowflake Strategy
Saving a small amount of money every day, when it turns into a big amount is known as the snowflake strategy. Getting discounts, money gifts from friends and relatives, the debts that you got from someone and others will help you in this strategy. In general, people call it extra money, and they use it to repay their debts. So, follow this strategy which will help you a lot in this matter.
What is called the Non-Priority Debts?
The debts that have lesser risks and don’t pose much negative impact on your lifestyle are called non-priority debts. Here are some of the examples of non-priority debts that are given below.
- Bank overdraft
- Debts from family members
- Personal loans
- Payday loans
- Home or store credits
- Housing society loans
As the debts have less priority, it doesn’t mean that you will not pay them. Obviously, you have to pay them, but in this case, the deadline might be a bit long. That is why you will get a good amount of time to gather the money, after paying the top priority debt.
Taking care of the Non-Priority Debts
Which one do you have to pay first? This question might come to your mind on the very first attempt. As usual, you have to target the debt that has a higher rate of interest. In addition to that, if its deadline is nearby, then it’s well and good. Go ahead and pay it. After paying it back successfully, move on to the next expensive one and try to repay it within a short span of time.
Important Advice on Clearing Debt
You must never struggle with your debts. Whenever you are getting signs of payment delay or deadline violation, make sure you take help from the debt experts. Never wait for too long. Else, there will be greater risks of losing assets, cars, and other valuable items. Just remember, no one will lend money for you to the creditors.
Always try to avoid such types of debts that don’t include the risk of involving the assets. Choose one of the best debt experts, visit him/her, narrate the entire situation, ask how to prioritize your debts, do as he/she advises, pay money and eliminate the debts. That’s all.