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Prioritising Debt
Prioritising Your Debts

The next step on your way back to normality from the debt trap is fairly simple - to stand back from the situation, analyze it objectively, make appropriate plans and resolve to take the necessary actions. Easily said isn't it? Yet only by doing exactly that can you hope to make the right moves at the right times and pull yourself out of the hole of debt that you are in. As you begin to take effective action and see some of the pressure coming off you as a result, it will become easier to take other necessary action. Once your paperwork is sorted and filed, you have set up an office in a corner with your typewriter or word-processor, you are ready for action. Now comes the really unpleasant part - finding out just how deep is the hole you are in and how rapidly it is getting deeper! To do this, you will need to stand back from the situation, analyse it objectively and resolve to take the appropriate actions. Easily said perhaps, yet only by doing exactly that can you hope to make the right moves at the right times. As you begin to take effective action and see some of the pressure coming off you as a result, it will in turn become easier to take other necessary action, but perhaps the hardest step is making a start by looking the full horror of your plight squarely in the face! Your subsequent tactics will depend on the analysis which you will carry out, so take time to ensure that the information you put down is accurate and that you are completely clear about your priorities.

Prioritising debt is the relatively simple process of establishing who to deal with first. The main factors to consider are how likely a creditor is to take drastic action, and how much damage he can inflict on you if he does. The size of the debt is not necessarily the best indicator of either of these factors, nor is the amount of noise any particular creditor makes. Debt prioritisation should be reasonably dynamic and must be adjusted as required to accommodate any changes.
Highest Impact
These are preferred creditors and will be those who can and will really damage you if some arrangement cannot be put in place. Debts which should go to the top of your list are generally 'secured' debts (i.e. against which you have offered assets as security which could be seized if you default) and money owed to local government, tax offices or other potentially unpleasant organisations who will react quickly if not negotiated with. Debts falling into this category might include unpaid VAT (if you are VAT registered), mortgages and other loans secured on property, debts to 'loan sharks' (if you have been unwise enough to use them), unpaid income tax and/or council tax, maintenance arrears and fines, and debts which are personally guaranteed by friends or relatives (you cannot be touched but they can). In the interest of keeping a roof over your head, unpaid rent should also be given urgent attention if arrears are significant. Car insurance policies of course should never be neglected since this could get you in serious legal and finacial trouble.
Medium Impact
Next in line will be debts to utilities: gas, electricity, water, telephone etc., credit agreements and hire purchase buy now pay laters go to the bottom of the list if you don't mind the goods being repossessed, store credit card companies and any other debts to creditors who might do you some damage if pushed. You will generally be able to string the utilities companies along for a certain amount of time, particularly if you agree to some kind of pre-payment scheme to prevent the arrears getting larger. However, as you receive threats to cut off of your phone or electricity supply in particular, these debts should be moved to high impact.
Low Impact
Right at the bottom of the list will be non-essential insurance policies, service agreements, bank overdrafts and other debts for which creditors are unlikely to chase you hard or where you can afford to live with the potential sanctions (such as bank charges, loss of medical insurance cover or no regular servicing of your car etc.). This category will include fund payments such as private pensions, savings plans etc. but bear in mind that there may be quite large losses of potential benefit involved. and it is far better to negotiate some sort of reduction of payment, or payment holiday if possible.