If you have several debts, you might be feeling overwhelmed. Some debts are more important than others – it’s important to pay off your debts in the right order.
What are priority debts?
Priority debts are debts such as mortgage arrears, rent arrears, fines and maintenance payments. With these debts creditors have extra powers to: repossess property, evict you, disconnect utilities or fine you.
Examples: mortgage, rent, utilities, tv licence, car insurance, income tax and property tax, fines or maintenance payments
Mortgage and rent arrears are particularly important because you could lose your home if you do not pay them.
You may have heard of the term statute barred debts. This means the creditor can legally collect the debt. You can read more about enforcement of debts.
What are secondary debts?
Secondary debts are other types of debts where the creditor does not have extra powers, for example they can’t take your home. The consequences of not paying these debts are less serious but don’t ignore these debts – you can still be taken to court if you don’t keep up the agreed payments.
Examples: bank overdrafts, moneylender and catalogue debts, credit card debts, credit union loans, personal loans
So which debts should I pay first?
We recommend that you pay off your debts in the right order, starting with priority debt first. The information below outlines the MABS money advice approach.
If you are considering a formal debt solution under personal insolvency, the order and amount of repayments will be fixed as part of this arrangement.
MABS preferred approach to prioritising your debts
Deal with priority debts first
Offer housing and utility creditors an amount on top of your normal payment to clear arrears over time.
For other priority creditors, try to clear arrears over a fixed time. You will need to work out your weekly or monthly proposals on this basis.
If possible try not to use up all your extra money on offers to your priority creditors. You need to have some left for your secondary creditors.
Deal with secondary debt next
If you have something left in your budget for secondary debts. the best way to divide it is with pro-rata distribution. This means: the largest debts get the largest portion of money while the smallest debts get the smallest portion.
For example: John and Mary have €35 (total offer) to divide between three secondary debts.
Catalogue debt: €210
Credit card debt: €1500
Bank loan: €1803
Total debt: €3513
Total offer: €35
Use the below formula on each debt to work out what each should receive from the total offer of €35.
Formula: (Single debt x total offer) /Total debt
Calculations are:
Catalogue: (210 x 35) / 3513 = €2.09
Credit card: (1500 x 35) / 3513 = €14.95
Bank loan: (1803 x 35) / 3513 = €17.96
If you have no money left to pay secondary debts, contact the creditor and ask for a payment break until your situation improves.
Other approaches to prioritising debt
There are other approaches to prioritising your debts, which are summarised in the tables below.
| Start with the most stressful debt | |
| What’s involved | Identify which debt is the most behind in payment Work out how quickly you could you pay it off If you put all your leftover money to repaying it each month |
| Pros | Sometimes even a relatively small debt creates a lot of tension. It could make sense to pay it first to ease your stress. |
| Cons | You could fall behind on other debts, which could start the stress cycle all over again. This option may cost you more in interest over time. |
| Start with the smallest debt | |
| What’s involved | 1. Identify your debts from largest to smallest. 2. Pick the debt with the lowest balance. 3. Use your leftover money each month towards paying off the smallest debt first. 4. When you’ve paid off the smallest debt, move to the next smallest debt. 5. Continue until you have paid off all your debt. |
| Pros | Sometimes even a relatively small debt creates a lot of tension. It could make sense to pay it first to ease your stress. |
| Cons | You could fall behind on other debts, which could start the stress cycle all over again. This option may cost you more in interest over time. |
| Start with the debt with the highest interest rate | |
| What’s involved | 1. List your debts in order from highest interest rate to the lowest 2. Pay off the debt with the highest interest rate first Continue to make minimum monthly payments on your other debts if you can 3. When you’ve paid off that first debt, move to the second-highest interest rate 4. Continue until you have paid off all your debt |
| Pros | Sometimes even a relatively small debt creates a lot of tension. It could make sense to pay it first to ease your stress. |
| Cons | You could fall behind on other debts, which could start the stress cycle all over again. This option may cost you more in interest over time. |
If you’re not sure which approach is most suitable for you contact MABS.
Find out more:
- Read more advice if you’re struggling to pay several debts
- Get more help managing your money during COVID-19
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