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How to sort out your debts
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If you have a problem with debt, it's important not to panic but don't ignore it either – it won't go away.
To deal with a debt problem, you will need to:
- sort out how much money you owe
- work out which are the most urgent debts for you to pay off
- work out if you've got any money to pay your debts off and, if so, how much
- deal with the most urgent debts as a matter of priority
- look at your options for dealing with the less urgent debts and work out how to pay them off
- contact your creditors and make arrangements to pay back what you owe
- work out your options if you don't have enough money to pay off all your debts.
This page tells you how to start dealing with a debt problem. It tells you:
- how to sort out how much money you owe
- how to work out which debts are the most urgent ones for you to pay off.
If you are worried about how to deal with your debts, there is free, confidential advice available.
Your local Citizens Advice Bureau can give you advice about debt problems. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB.
The first thing you will need to do before you can tackle a debt problem is to sort out how much money you owe. To do this, you will need to make a list of all the people and companies you owe money to (your creditors). You will need to collect the following information for each debt:
- the name and address of the creditor
- the account or reference number
- a copy of the original loan agreement you signed.
It’s a good idea to keep the latest letter or statement for each debt together in one place so that you can easily find them if you need them.
If you've received any court papers or letters that seem urgent, you may need to act quickly. If you are not sure from the papers what you should do next, get advice straight away from an experienced adviser.
Your local Citizens Advice Bureau can give you advice about a debt problem. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB.
Once you've made a list of all your creditors, you need to work out which debts are the most urgent.
Some debts are more urgent than others because the consequences of not paying them can be more serious than for other debts. These are known as priority debts.
If you've got any money to pay off your debts, you must make sure you can deal with any priority debts first, before you deal with any less urgent debts such as credit card debts, overdrafts and other loans. These type of debts are known as non-priority debts.
Priority debts include:
- mortgage or rent arrears. If you don't pay these, you could lose your home
- gas and electricity arrears. If you don't pay these, you can have your supply disconnected
- council tax arrears. If you don't pay these, a court can use bailiffs to take your goods. If, after this, you still have arrears unpaid, you can be sent to prison
- court fines such as magistrates' court fines for traffic offences. If you don't pay these, the court can use bailiffs to take your goods. If, after this, you still have arrears unpaid, you can be sent to prison. Parking penalties issued by local authorities are not priority debts
- arrears of maintenance payable to an ex-partner or children. This includes Child Support you owe to the Child Support Agency. If you don't pay these, a court can use bailiffs to take your goods. If, after this, you still have arrears unpaid, you can be sent to prison
- income tax or VAT arrears. You can be sent to prison for non-payment of income tax or VAT
- TV licence or TV licence arrears. It’s a criminal offence to use a television without a licence. You could be fined.
In Northern Ireland, the courts don't use bailiffs but in some cases can use seizure orders on certain items.
You may have other debts which you think it is particularly important to pay. For example, if you're disabled and rely on your car to get around, you may need to make paying for your car a priority debt.
You need to think very carefully about which debts you treat as the most important ones. You must have very good reasons, as you might have to convince a court or your other creditors why it is reasonable for you to treat these debts as more important than others.
For more information about dealing with priority debts, see dealing with urgent debts.
Non-priority debts include:
- benefits overpayments
- credit debts such as overdrafts, loans, hire purchase, credit card accounts and catalogues
- water and sewage charges – you can’t be cut off for water debts
- student loans
- money borrowed from friends or family
- parking penalties issued by local authorities.
You can't be sent to prison for not paying non-priority debts. But if you don't make any offers to pay, without explaining why, your creditors may take you to court. If you still fail to pay when the court has ordered it, your creditors can take further action. For example, they can get another court order which allows them to send bailiffs round to take your property away. This will be sold to cover your debts.
If you don’t keep up payments under a hire purchase agreement, the lender may be able to take back the goods. Depending on how much you have paid, the lender may not need to get a court order first.
For more information about bailiffs, in England and Wales, see Bailiffs.
What to do next
Once you've worked out how much money you owe and sorted your debts into the urgent and less urgent ones, you'll need to work out if you've got enough money to pay them off.
To do this, you will need to work out your budget.For information about how to work out your budget and our online budgeting tool, see How to work out your budget.
If you're trying to cut your spending, or are having problems with your outgoings, you could get help with bills. You could also use our budgeting tool to see exactly where your money goes each month.