Make sure you tackle debts in the right order

FOR many people, falling levels of income over the last six months has led to increasing amounts of debt – often to several different creditors.

It’s not easy to prioritise when lots of people are shouting for their money back – and it often seems simplest and best to pay the person who is shouting the loudest first.

The truth is this is rarely a great idea since the person who shouts loudest often only shouts because there is nothing else for them to do to force you to pay.

Let’s say you are in debt to your credit card company and can’t pay what is due.

What’s the worst that can happen to you?

They can put a black mark against your credit rating or threaten you with court action.

But if you’re skint, taking you to court is not going to do them any good.

What happens if you get into arrears with your gas bill, though? Your supply can be cut off.

Likewise, if you don’t pay your mortgage or rent for long enough, you can lose your house. That’s a lot worse than a poor credit rating or threats of court action.

The gas company, mortgage provider or landlord might not make as much noise about the fact you are in arrears as your credit card company will.

So, don’t always pay the person who shouts loudest first.

Have a look at the consequences of not paying your outstanding creditors before deciding in which order you should pay them back.

And remember that this is not a get-out-of-jail-free card and we’re not suggesting that you shouldn’t pay your debts.

It’s just that if you can’t do it all at once then any repayment plan needs to be sensible and take account of what would happen if you default.

You should contact your creditors as soon as you think there may be a problem with payment.

The longer you put these things off the harder it can be for your creditors to come up with a sensible solution.