Debt can take various forms, and some are more important than others. It is possible to place debts within two separate categories – priorities and non-priorities. The way that the two types can be differentiated is based on the action that can be taken for money to be recovered. With priority debts it may be possible for you to lose something tangible if you do not act quickly. As an example, some creditors could:

•    Take away your home (repossession / eviction)
•    Cut off your gas or electricity supply
•    Send a bailiff to recover your belongings
•    Ask the Magistrates’ court to send you to prison

Common priority debts include: 

•    Mortgage arrears
•    Second mortgage / secured loan arrears
•    Rent arrears
•    Council tax 
•    Gas / Electricity
•    Magistrates’ court fines
•    Child maintenance
•    Benefit overpayments and Social Fund loans
•    Income tax, National insurance and VAT arrears
•    Hire-purchase, Conditional sale or Bill-of-sale arrears
•    TV license arrears
•    Telephone, Sky, Virgin Media, Mobile ‘phone arrears

A non-priority debt is one where the creditor has less power to recover their money, these typically include credit debts such as unsecured loans, credit cards and bank overdrafts. On the face of it these creditors are actually very limited in their powers to recover their money. This is precisely the reason why it is often these type of creditors that are the most vocal when it comes to their recovery action, their main option is to scream and shout for their money through a bombardment of letters and telephone calls. Creditors of this nature can be very persistent, but once you get an understanding that this is their main option you should hopefully be able to restore the equilibrium – a non-priority creditor’s bark is far worse than their bite! Missed or reduced payments can often result in your credit file being affected through late-payment markers and defaults being placed upon it; a golden rule of successfully dealing with your debts is to be resigned to the fact that your credit score is going to fall by the wayside. Any marks or defaults sit on your credit file sit on it for a maximum of six years, so your file will get better again after time. If you would like to obtain a copy of your credit file you can do so by making an application to one of the credit reference agencies: 

http://www.equifax.co.uk/
http://www.experian.co.uk/
http://www.callcredit.co.uk/

In a worst-case scenario it is possible for a non-priority creditor to use legal proceedings to try and recover their money. This is nearly always via the county court, which is a civil court. The majority of this action is actually carried out via a paper exercise, you wouldn’t usually have to attend a hearing unless it is your intention to defend a claim. There is plenty of information on this website outlining the principles of court action in great detail, so I will not dwell on it here. 

DEBT COLLECTION AGENCIES AND THE LIKE

A common ploy for non-priority creditors is to use debt collection agencies to chase for payment. These can be in-house to the original lender (e.g. Metropolitan for HSBC and Mercers for Barclaycard) or third-party firms. The golden rule is that they do not have any further powers to collect payment. They are NOT bailiffs, nor have they anything to do with the courts. If they imply that they are going to send a doorstep visitor you do not have to deal with them. They cannot break in to your property, nor can they take anything from you. They have the same powers as a random person visiting your address, i.e. none. You can tell them to leave, and if they don’t they could be trespassing. Another golden rule, and one that you are likely to see mentioned all over the website, is to NEVER SPEAK TO A CREDITOR ON THE TELEPHONE! Keep all correspondence in writing, it is way more civilised and you’re more likely to get your offers of payment agreed faster. Most creditor collections activity is target-based, the telephone collectors will say all sorts of things to try and badger you for payment. Some can be very aggressive and downright rude. Some may even misrepresent their powers. If you state in writing to your creditors that you only wish to correspond in writing they should adhere to this request. 

So, now you know the difference between a priority debt and a non-priority debt we can now look to start tackling them! The next part of this guide will discuss the most important part of dealing with debts there is; the budget sheet!