Debt

Debt is when you owe money to someone or an organisation.

It can be very scary when you owe someone money. Depending on how much you owe and who you owe it to, this could lead to legal action if you don’t repay the money.

Sometimes debt can be caused by mismanaging your finances. You have enough income to cover your essential payments, but you spend too much on unnecessary purchases. If this is the case, you can begin to fix this by budgeting. For more information on this, you can check out our Budgeting page.

Priority Debt

Priority debts are the debts that the creditors (the people you owe the money to) can take the strongest legal action against you if you don’t repay the money. These include:

• Mortgage repayments – the mortgage lender can take court action for possession of your home
• Rent – the landlord can evict you if you owe rent
• Income tax and VAT – you can be made bankrupt or imprisoned for non-payment of income tax or VAT
• Fines, such as magistrates court fines for traffic offences. If these are not paid, the court can use bailiffs to repossess your goods. If, after this, you still have arrears unpaid, you can be sent to prison
• Maintenance, child support or, council tax or rates. If these are not paid, a court can use bailiffs to repossess your goods. If, after this, you still have arrears unpaid, you can be sent to prison
• Gas, Electric and oil debts – if these bills are not paid you can have your supply disconnected
• Hire purchase (sometimes called ‘conditional sale’) will be a priority debt if it is for an essential item, for example, if you have bought a car on HP and need the car to go to work
• It is important to pay off any priority debts first before any non-priority debts

Non-Priority Debts

Non-priority debts include:

• Credit card and store card arrears
• Catalogue arrears
• Bank overdrafts and loans
• Benefits overpayments
• Hire purchase (sometimes called ‘conditional sale’) will be a non-priority debt if it is for non-essential goods like a TV
• Money borrowed from family or friends

Although the creditors for non-priority debts can take court action against you if you do not pay and may send in the bailiffs, you cannot be sent to prison

If you want help budgeting, you can talk to a trusted adult and check out these helpful organisations.

Citizens Advice – We give people the knowledge and confidence they need to find their way forward – whoever they are, and whatever their problem.

Money Advice Service – Supporting people’s money management.

Money Saving Expert – Cutting your costs. Fighting your corner.

National Debtline – The no.1 guide to taking care of your finances.

Government – The best place to find government services and information.

Step Change – Free, confidential advice from the UK’s leading debt charity.

Pay Plan – We offer trusted, expert help & advice to anyone struggling with multiple debts. Since 1992, we’ve helped over 1 million people take control of their finances.