It is currently almost impossible to go through life without having at least some form of debt. Our society and work industry are intertwined with the services and products offered by banks and many private lenders, making it almost a requirement to use them.
For those who do not know how to properly manage their income and expenses, this can mean going into considerable debt that must be then paid off over extended periods of time. If or when this happens, it is essential to know how one can prioritise one’s debt in order to mitigate much of the impact that it has on one’s daily life.
Understanding how various forms of debt can be organised is vital to balancing them with your monthly income and maintaining a comfortable lifestyle.
Why Is Prioritising Important?
Each loan that you take out or form of debt that you must pay will have different terms and conditions. Some may have penalties that are more serious than others or they may have larger interest rates. This makes the order in which you repay them extremely important. When it comes to financial advisors, the general consensus is that you should categorise your repayments as follows:
- Priority repayments;
- Non-priority repayments;
- Debt emergencies;
Generally speaking, non-priority forms of debt refers to loans that do not have any immediate consequences or that do not have to be repaid on a very strict timetable. This category usually includes credit cards, lines of credit that are not nearing their term, and unofficial loans (such as those taken from friends and family).
At the opposite end of the spectrum, we have debt emergencies. These are the ones that may result in court action, eviction, bailiff action or disconnection, depending on the type of debt. Your biggest priority should always be to repay these first as they can do immediate damage.
Lastly, there are priority repayments. This category includes loans that have large penalties for late repayments, court fines, rent, utility bills, and payments to the DWP and HMRC. These have to be paid on time, however, being one or two days late will not have dangerous consequences.
Repay Emergencies and Priorities First
Emergencies and priority repayments should be made first, however, if you are having financial difficulties, you may not have enough money for all your debts. If this happens, If this happens, simply start by taking care of the emergencies so that you will only be left with the priority repayments.
Next, you will have to look at your lender agreements and check to see which one of the payments must be made urgently and which can wait. For example, electric companies often wait 30-60 days before disconnecting a client from the grid. This gives you time to find the money needed to pay the bill.
Consolidate Your Debt
Prioritising your debt is extremely important because it keeps your credit score up and your financial life as healthy as possible. This having been said, if you ever find that you are unable to repay your debt on a monthly basis, it may be time to get a debt consolidation loan. This will allow you to repay all the other ones that you may have taken out and leave you with a single monthly payment and a single interest rate.
Repaying all of your debt at the same time is not always an option. This makes it imperative to properly manage your income and prioritise your monthly payments.Not repaying certain debts on time can have extremely serious consequences and may leave you defenceless in front of liquidators and the authorities.