Why it is important to prioritise
Rising prices have impacted on all our finances.
Are you facing annual bills such as car or home insurance? Perhaps the post-Christmas bills are making it more difficult to make ends meet.
So, what happens when we just can’t stretch any further? By acting early, you can reduce stress and have a plan in place.
At MABS, we do not only help those who have problem debt. In this blog, we talk about prioritising your debt. Let’s get started…
What are priority payments or debts?
A priority debt is a bill or payment that can impact your life negatively if you don’t pay it or fall behind on payments. Examples of priority payments are:
Falling behind on these essential payments can result in repossession of your home or car, evictions, disconnections or fines, for example.
Mortgage and rent are particularly important because you could lose your home if you do not pay them. If you are already in arrears on your mortgage, read more about Abhaile and how it can help you keep your home.
It is important to get into the habit of matching your budget according to how you get paid. Are you paid weekly, bi-weekly or monthly?
- What are my priority payments this week?
- Do you need to pay your rent/provide for your mortgage?
- Pay for your electricity, heat your house?
- Buy your groceries?
- Do you need to travel to work or pick up your children from school? If so, you need to make sure you have petrol or diesel for the car.
This is an example of looking at your priority debts/payments and you can then look at what is left over for secondary debts/additional expenses.
Side note: if possible, you should try to put something aside for contingencies, for the unforeseen that might crop up like needing to replace an item or an unexpected trip. There are also supports available that can be used to put towards emergencies, for example, Additional Needs Payment.
The Additional Needs Payment is a payment to help you with an expense that you cannot pay from your weekly income.
You may get an Additional Needs Payment, if you are working and on a low income, or getting a social welfare payment. For more information or to check if you qualify, visit Additional Needs Payment on Citizen’s Information.
Looking ahead will ease some of the stress when the unforeseen happens.
What are secondary debts?
Secondary debts are other types of payments where the consequences of arrears are less serious, for example, they can’t take your home. Just because these debts or payments are less serious, you shouldn’t ignore them – you can still be taken to court if you don’t keep up the agreed payments.
Examples of secondary debts are:
- bank overdrafts
- legal moneylender and catalogue debts
- credit card debts
- credit union loans, and
- 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. You can read more on the MABS money advice approach, but you should start by:
- Assessing your situation – what have you got coming in and going out? Have you got any additional money to pay towards any arrears?
- Decide on a plan – MABS can help if you don’t know where to start or are getting overwhelmed by the process. Contact an adviser to support you through the process.
- Present the repayment plan to your creditor/s
- Review your situation – is the new plan working, and has your situation changed?
If you are considering a formal debt solution under personal insolvency, the order and repayment amounts will be fixed as part of this arrangement.
MABS approach to prioritising your debts
Deal with priority debts first
If you have fallen behind on payments or bills, you will need to offer your creditors an affordable amount – on top of your regular payments – to clear the arrears over a fixed period.
When working out your budget, if possible, don’t use all your allocated money to pay down your arrears. You need to pay your secondary debts too.
Deal with secondary debt next
Where you have the room left in your budget, not leaving yourself below the Reasonable Living Expenses guidelines. The easiest way to split the amount between debts is to allocate the largest amount to the largest debt and move down the list that way.
Other Approaches to Tackling Debt
There are many ways to tackle your debts, one might suit you and the way you manage your finances better than others. Choosing one that fits your budget and mindset will be essential to keep to your plan.
Help and advice is available
We hope you found this blog helpful when it comes to prioritising your debts, as much as possible. Have you got your own question about managing your money and want to discuss your situation with an adviser?
You can call the MABS National Helpline on 0818 07 2000 Monday to Friday, from 9am to 8pm, WhatsApp 086 035 3141 or find the contact details for your local office.
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Disclaimer: This blog does not represent legal advice and is intended for guidance only. If you are concerned about your current or future personal financial situation, then please contact an adviser from MABS. Advisers are available by phone, email, WhatsApp and in-person in locations nationwide.