The word ‘debt’ has become a household term for many of us in recent years. But the question is what the different types of debt are?
Note: it’s important to understand each type of debt fully – as they can lead to different consequences if you fail to repay them.
Let’s start with priority debts.
Your priority debts are the debts with the most serious potential consequences attached if you fail to repay them. Your priority debts include your mortgage/rent, any secured loans you have, your utility bills (gas, water and electricity), tax, insurance policies, etc.
If you fail to repay your priority debts you could face consequences such as:
• Having your gas/electricity cut off.
• Losing your home.
• Having some of your possessions taken away.
• Facing prison.
Of course, you’ll be given prior warning if your creditors were thinking about taking any action against you for failing to repay your priority debts – and as long as you co-operate with them, you should be offered the chance to avoid consequences like these.
Your ‘non-priority’ debts carry less serious consequences for failing to repay them – that doesn’t mean, though, that they aren’t important, or that you aren’t obliged to repay them.
Your creditors can’t repossess your home over a non-priority debt, but they can seek help from the court to recover the money you owe.
Your non-priority debts include any credit/store cards you owe money on, catalogue debts, overdrafts, unsecured loans, etc.
If you do find yourself struggling with your non-priority debts (or priority debts, for that matter), the sooner you take action, the more opportunity you should have to avoid the consequences of non-payment.
You should always speak to the company/bank you owe money to if you’re struggling. They may be able to offer you some short-term help (a payment holiday, for example), or they may recommend that you seek professional debt advice. Just make sure you understand the consequences before you commit yourself to anything.
Please note: if you ever experience difficulties with your debts, you should make sure you address your priority debts before you make any agreements with your non-priority creditors.
When writing this article, these resources were useful: