Distinguishing Between Priority and Non-Priority Debts
Debt is most often something society prefers to avoid talking about. It is known for being swept under the rug of many homes and not thought of as something important that needs to be paid attention to.
When debt is managed in the wrong way, it can bring about a lot of stress and add to a series of problems when not paid attention to in a proper manner.
If debt is money that you owe to a company, organisation or individual, whoever you owe money to is known as a creditor. Creditors will provide you with credit, which when used, is classified as debt.
Ideally, making a lot of different sources of debt should be avoided at all cost.
However, if it is paid on time and allows you to obtain a proper credit score, it can be a good thing.
To manage debt, you have to be able to prioritise it and know the difference between what’s high-priority and what is not. It will not only help you reduce debt faster, but also avoid getting into trouble with creditors.
The Importance of Priority Debt
Making sure you pay the most important bills first can be detrimental to your financial well-being.
Priority debt refers to debt that if not paid, presents you with the risk of losing something if you don’t pay it. Because not paying these bills could lead to you losing something, such as your assets and personal possessions, it is a lot more critical than other debts.
Priority debt might be something like a secured loan regarding arrears or your mortgage. Not paying high priority debts could potentially lead to the repossession of property. It is why paying a high-priority debt, such as a mortgage is extremely important.
If you fail to pay a priority debt such as court fines or child maintenance, you could face imprisonment, which is the worst penalty for not paying your debt.
What are Non-Priority Debts?
Since we’ve established how crucial it is to pay priority debts, there is also such a thing as non-priority debts. These refer to anything that is not a priority and can be paid in a due period of time, such as credit cards, overdrafts or unsecured loans.
Non-priority debts can also refer to the money you owe to either family or friends, that won’t take legal action against you if you take longer to pay them back.
Apart from choosing to pay one of these debts off completely, you can focus on dividing payments evenly between all your non-priority debts, allowing you the peace of mind that all your debts are being reduced at the same time, which also allows the person you owe them to, to trust you more with repaying them back.
Need help with debt management? Credit Matters can help with debt counselling and help with debt management.