Avoiding Long Term Debt

Becoming redundant through insolvency may be temporary, but short-term debt can lead to longer-term financial problems.

Redundancy can mark the beginning of financial difficulty. If you have existing debt like a mortgage, loans, or credit cards, you may have to borrow more to stay on track.

It is important to prioritise your spending, manage expenses and look after your existing debts while you explore your options for new employment.

If you manage your expenses and debts well, as well as making a good financial forecast, you will be more likely to avoid long-term debt.

Managing Existing Debts

First it is important to prioritise any current debt that you have.  It can be helpful to sort these into high priority debts and low priority debts.

 

High Priority Debt

High priority debts include:

  • mortgage and loans secured on your home
  • other housing-related costs like rent, gas and electricity
  • Government debt and bills like council tax or income tax

These debts are the most important because if you fail to pay, there will be direct consequences. For example, if you are behind on your mortgage or rent, you could be evicted.

If you fail to pay other home debts like your gas and electricity bill, your services could be cut off.

If you do not pay debts like council tax, TV licence, taxes or magistrates court fines, then in certain circumstances bailiffs (court appointed officials) may attend to remove goods from your home.

If you are worried about your debts and your creditors (the people who you owe money), read this information from the Citizens Advice Bureau .  

 

RPS Credit CardLow Priority Debt

Low priority debts do not put your home, or home life, immediately at risk. If you fail to pay these kinds of debts, the consequences are usually less serious.

Paying low priority debt is still important, but you should focus on high priority debts first.

Low priority debts include:

  • credit card debts
  • hire purchase agreements
  • unsecured bank and payday loans (these are loans that are not
  • secured against your property)
  • water bills
  • loans from friends and family

If you have paid your high priority debt payments in a given month, start making minimum payments on your low priority debts, too.

Remember that low priority debts still represent money that you owe to other people. Your creditors (the people that you owe money) can sue you for any money that you owe them. This could result in a county court judgement against you. If a creditor gets a county court judgment against you, there may be payment terms that you will have to keep. Failure to pay can result in seizure of goods or, if your debt is over £5,000, bankruptcy.

If you are worried about your low priority debt and your creditors, read the Citizens Advice Bureau advice about How to deal with creditors of non-priority debts.