There are many articles about paying off debts and most of them will explain that you should pay off your most expensive debts first. This will be the most cost effective way to do things. Others may say that it is better to pay off the smallest ones first because you then start to see the number of debts disappearing and it can be very encouraging. However, these all assume that the urgency to pay the debts is the same and this may not be the case.
When you are looking at your debts in order to think about which to pay back first it is worth considering which is the most crucial. This means which of them will cause the most problems if it is not paid off. Some debts will be considered to be more important than others and it is important to understand how to prioritise which to pay first, particularly if you have a limited income source to repay them with.
For example, you may have had a court summons for not paying a debt, so make sure that you deal with that one as soon as possible. This also applies if you are under threat of eviction for not paying mortgage or rental payments. If the bailiffs are threatening you could also be a reason for prioritising a debt. You should also consider whether you are likely to have a utility switched off through not paying. If you do not have the money to pay off the whole debt then try to negotiate. Work out how much you could afford to pay and try to arrange instalments to repay the debt. If you can show that you are willing to start repaying and that you have a realistic idea of how you can do this, then you should find that you will be able to organise something to keep you and them happy.
The next debts to look at are those which cover payments for essential items. Things like your rent, mortgage or loans secured against your home as not paying could lead to you being evicted and you ending up homeless. You may have court fines, which if you do not pay could incur steep penalties. Taxes such as National Insurance, VAT or Income Tax will have huge fines and big consequences if not and on time and so it is wise to make sure that these take priority. Council tax is also one that could end up causing you a lot of problems if it does not get paid. Utility bills, such as gas and electricity are important as without paying them you will cut off and this would make life very uncomfortable. TV licence is also important, if you want to continue watching the television. If you have hire purchase agreements for essential items such as a fridge or bed then you will want to make sure that you get those sorted out quickly. Lastly if you have child maintenance to pay then you need to prioritise this as not only will it be important to your child’s welfare that they get the money, but you could have fines imposed if you do not make the required payments.
Once you have addressed any of these then you have lower priority debts such as payday loans, credit cards, store cards and any other store or catalogue dents. Overdrafts, loans, and money borrowed from friends and family. Although you could go to court for not paying some of these, you will not suffer so badly as a result of these. You water bills also come into this category, but you should pay as much as you can towards them even if you are just paying for current use or else what you owe will just keep rising.
To choose between these lower priority debts, you should pay the most expensive first but take into accounts any charges for repaying early or overpaying. Make sure that you leave enough money to pay minimum requirements on other debts and to pay for your essentials.
If you are still confused then you can get free debt help. Even telling someone about the problem can help to clarify things in your head and your advisor should be able to help you to work out how much to pay back and which debts to target first. The quicker you start to deal with it the better as otherwise the debts can keep growing and the problem will be even more difficult to fix. Deciding that you want to get out of debt is a great decision to make and telling someone about it can be hard. However, getting the help you need can be a big relief and you will be able to start working on sorting out your problems and no longer having to worry about debts again.