There are lots of types of debts and you may be struggling to pay back one debt or multiple debts.
Borrowing money isn’t necessarily a bad thing, however it’s only when debt repayments become unaffordable and overwhelming that debt can become a serious issue. Circumstances change, that’s a given, and debt that was once manageable can quickly become unmanageable.
It’s important to know that there is help available and there are various types of debt solutions that are designed to offer you debt relief and help you get your finances back on track.
Below are some of the most common types of debt that people struggle with:
Classed as non-priority debts, credit cards are intended for short-term lending, and when managed properly, they allow consumers to spread the cost of their purchases by paying the outstanding balance every month, as well as build up their credit score.
Credit cards are one of the most easily accessible forms of credit, however with the increase in living costs, job losses and rise in unemployment, for some people, it can be hard to be able to afford to make the minimum balance each month, let alone the full payment.
When repayments on your credit card are missed, lenders can apply charges and interest, in accordance with the agreement you made with them.
Personal loans are often used to help you pay for important things in your life such as house renovations or a car.
By taking out a personal loan you are borrowing a fixed amount from a bank or creditor and agree to paying it back in fixed payments over an agreed number of months/years.
Interest is charged on most loans and the rate of interest in dependant on varying factors.
If your personal circumstances changes, you may find it hard to keep up with your monthly payments resulting in additional interest and charges added to the loan or court action such as a County Court Judgment (CCJ).
Classed as non-priority debts, credit cards are intended for short-term lending, and when managed properly, they allow consumers to spread the cost of their purchases by paying the outstanding balance every month, as well as build up their credit score.
Credit cards are one of the most easily accessible forms of credit, however with the increase in living costs, job losses and rise in unemployment, for some people, it can be hard to be able to afford to make the minimum balance each month, let alone the full payment.
When repayments on your credit card are missed, lenders can apply charges and interest, in accordance with the agreement you made with them.
Personal loans are often used to help you pay for important things in your life such as house renovations or a car.
By taking out a personal loan you are borrowing a fixed amount from a bank or creditor and agree to paying it back in fixed payments over an agreed number of months/years.
Interest is charged on most loans and the rate of interest in dependant on varying factors.
If your personal circumstances changes, you may find it hard to keep up with your monthly payments resulting in additional interest and charges added to the loan or court action such as a County Court Judgment (CCJ).
Catalogues are a popular way to buy items and allow you to break up your payment for purchases into smaller or multiple payments.
You’ll usually pay interest on your payments, meaning that making the minimum payment can lead to a bigger debt.
Even though they are regarded as a non-priority debt, if you can’t afford to pay the company, action could be taken against you and your debt could be passed onto a debt collection agency, and even resulting in the creditor taking court action against you.
Payday loans are regarded as a short-term solution for those short of cash until payday or used for small purchases, and usually involve very high interest rates.
Due to the significant interest rates associated with them, you can quickly find yourself in debt with payday loans, by missing the repayments, or struggling to make minimum payments
Payday loans are not a debt solution, they are a non-priority debt that can lead you into a vicious cycle of debt due to high interest rates and short payback windows.
Catalogues are a popular way to buy items and allow you to break up your payment for purchases into smaller or multiple payments.
You’ll usually pay interest on your payments, meaning that making the minimum payment can lead to a bigger debt.
Even though they are regarded as a non-priority debt, if you can’t afford to pay the company, action could be taken against you and your debt could be passed onto a debt collection agency, and even resulting in the creditor taking court action against you.
Payday loans are regarded as a short-term solution for those short of cash until payday or used for small purchases, and usually involve very high interest rates.
Due to the significant interest rates associated with them, you can quickly find yourself in debt with payday loans, by missing the repayments, or struggling to make minimum payments
Payday loans are not a debt solution, they are a non-priority debt that can lead you into a vicious cycle of debt due to high interest rates and short payback windows.
Utility bills, such as gas, electricity, and water, are essential items for comfortable living and classed as priority debts.
If you miss or fail to make payments to your providers you will fall into arrears and they may start adding late or non-payment charges to your account, further increasing the total amount that you owe.
In the worst case possible, they eventually could cut off your supply also.
Because utility bills are priority debts, it means that you should always pay payments to these before any unsecured debts such as credit cards, payday loans or overdrafts.
Council tax is a fee you pay to your local council every year, often by 10monthly instalments. It helps your local authority to pay for local services such as education, transport, and leisure.
It is a priority debt and should always be considered as one of your top items to be paid.
You may be eligible to apply for a council tax reduction if you fall into any of the exempt categories, this could be available to you if you live alone, claim benefits, are on a low income, or in severe financial difficulty.
If you fall behind with your council tax payments, you’re at risk of your local authority making you pay the amount for the year in full. If you don’t pay what you owe, bailiffs can be appointed to collect overdue council tax debts, and you are at risk of being taken to court, which will result in additional court costs.
Utility bills, such as gas, electricity, and water, are essential items for comfortable living and classed as priority debts.
If you miss or fail to make payments to your providers you will fall into arrears and they may start adding late or non-payment charges to your account, further increasing the total amount that you owe.
In the worst case possible, they eventually could cut off your supply also.
Because utility bills are priority debts, it means that you should always pay payments to these before any unsecured debts such as credit cards, payday loans or overdrafts.
Council tax is a fee you pay to your local council every year, often by 10monthly instalments. It helps your local authority to pay for local services such as education, transport, and leisure.
It is a priority debt and should always be considered as one of your top items to be paid.
You may be eligible to apply for a council tax reduction if you fall into any of the exempt categories, this could be available to you if you live alone, claim benefits, are on a low income, or in severe financial difficulty.
If you fall behind with your council tax payments, you’re at risk of your local authority making you pay the amount for the year in full. If you don’t pay what you owe, bailiffs can be appointed to collect overdue council tax debts, and you are at risk of being taken to court, which will result in additional court costs.
An overdraft is a type of debt linked to your bank account allowing you to spend more money than is in your account, up to an agreed limit.
A type of consumer credit, they are repayable on demand, meaning your bank can ask for the money back in full at any time.
Overdrafts usually have very high interest rates attached to them so can be an expensive way to get credit, and these rates now are typically higher than most standard credit cards.
A store card is a type of finance agreement with a company that allows you to buy goods from their shop and pay for them at a later date.
Like a credit card, you will use the card to pay for items and will be billed by the store card company, choosing to pay your debt in one go or in instalments.
Store cards can be enticing and look like a good idea as you are often given an incentive to open the account, however they come with extremely high interest rates, often higher than credit cards, therefore if you don’t pay off your balance immediately then you are likely to end up owing more due to added interest.
An overdraft is a type of debt linked to your bank account allowing you to spend more money than is in your account, up to an agreed limit.
A type of consumer credit, they are repayable on demand, meaning your bank can ask for the money back in full at any time.
Overdrafts usually have very high interest rates attached to them so can be an expensive way to get credit, and these rates now are typically higher than most standard credit cards.
A store card is a type of finance agreement with a company that allows you to buy goods from their shop and pay for them at a later date.
Like a credit card, you will use the card to pay for items and will be billed by the store card company, choosing to pay your debt in one go or in instalments.
Store cards can be enticing and look like a good idea as you are often given an incentive to open the account, however they come with extremely high interest rates, often higher than credit cards, therefore if you don’t pay off your balance immediately then you are likely to end up owing more due to added interest.Classed as non-priority debts, credit cards are intended for short-term lending, and when managed properly, they allow consumers to spread the cost of their purchases by paying the outstanding balance every month, as well as build up their credit score.
Credit cards are one of the most easily accessible forms of credit, however with the increase in living costs, job losses and rise in unemployment, for some people, it can be hard to be able to afford to make the minimum balance each month, let alone the full payment.
When repayments on your credit card are missed, lenders can apply charges and interest, in accordance with the agreement you made with them.
Many people enjoy a little bit of gambling; however, it can easily get out of hand and many people can find themselves in debt.
Some people may try to pay off their current debts with gambling but often fall further into debts, or they use things such as an overdraft, credit card or payday loan to fund their gambling.
Gambling can quickly become a big problem and with hundreds and thousands of pounds owed to the gambling companies or the credit agencies whose money is used to gamble.
Paying your mortgage is a priority and failing into arrears on your mortgage can lead to serious consequences.
Missed mortgage payments are recorded on your credit file, and if you don’t pay what you owe you, providers can add late charges or added interest, and in the worst case possible, your house could be repossessed.
Rent arrears are a priority debt and if you have rent arrears on a property you live in then you must contact the landlord or letting agent to manage and repay what you owe. If you fail to continue to make payment you could be at risk of eviction.
Many people enjoy a little bit of gambling; however, it can easily get out of hand and many people can find themselves in debt.
Some people may try to pay off their current debts with gambling but often fall further into debts, or they use things such as an overdraft, credit card or payday loan to fund their gambling.
Gambling can quickly become a big problem and with hundreds and thousands of pounds owed to the gambling companies or the credit agencies whose money is used to gamble.
Paying your mortgage is a priority and failing into arrears on your mortgage can lead to serious consequences.
Missed mortgage payments are recorded on your credit file, and if you don’t pay what you owe you, providers can add late charges or added interest, and in the worst case possible, your house could be repossessed.
Rent arrears are a priority debt and if you have rent arrears on a property you live in then you must contact the landlord or letting agent to manage and repay what you owe. If you fail to continue to make payment you could be at risk of eviction.
It’s important to understand the priority of your debts and the ones that have a higher priority and risk than others if you do not pay them, such as losing your home or other assets.
By falling behind on some payments, bailiffs can visit your home and take goods and there are some debts that can be collected by money being directly taken from your wages or benefits.
If you have a mix of debts, you should pay you priority debts first then look to pay your non-priority debts. If all your debt is non-priority, then it’s best to think about which debts will cost you the most if you miss repayments and address paying those first so that your total amount of debt doesn’t build further.
These include:
These include:
If you’re feeling overwhelmed and not sure where to start regarding your debt concerns, our friendly advisors are here to help you deal with your debt, start your journey to debt freedom and get back to enjoying life again.
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Lucy Novo Deakin is a licensed insolvency practitioner in the UK by the Insolvency Practitioners Association (IPA).
My Debt Plan Ltd provides insolvency solutions to individuals, specialising in IVA’s. All advice given is provided in reasonable contemplation of an insolvency appointment. Where you are not suitable for an IVA, we may refer you to one of our trusted partners who specialise on alternative solutions, and as such we will receive payment for the introduction if you enter into a debt solution with one of our partner companies.
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To find out more about managing your money and getting free advice, visit Money Helper, an independent service set up to help people manage their money.
*Our advice on your options is always free. We will always notify you if a solution you choose has any cost.
**Of 2,381 IVA cases approved between January-December 2023, the average expected write off assuming successful completion is 74%.
A debt write off amount between 25% and 75% is realistic, however, the debt write off amount will differ for each customer upon their individual financial circumstances and is subject to approval of their creditors. Any remaining qualifying unsecured debt in your IVA will be written off, however some unsecured debts will be excluded, such as court fines, child maintenance and student loans, therefore you will need to continue paying these both during and after the IVA.
