When money is short, the order in which debts are dealt with matters as much as the amounts. A short-term loan or cash advance is usually not the debt with the most serious immediate consequences, even though its interest can feel urgent. This guide follows Citizens Advice guidance for England; the same organisation publishes separate advice for Scotland, Wales and Northern Ireland, where some consequences and procedures differ.
What makes a debt a priority
Citizens Advice describes priority debts as debts that can cause particularly serious problems if nothing is done about them. Not paying them could mean losing a home, having an energy supply cut off, losing essential goods or, in some cases, going to prison. The advice is to identify and deal with priority debts first, and only then to look at the rest.
Debts that are usually priorities
The Citizens Advice list for England includes:
- Rent arrears, because a landlord can seek a possession order from a court before eviction.
- Mortgage or secured loan arrears, because a lender can also seek possession through the court.
- Council tax arrears, because the council can take a person to the magistrates’ court. Prison is possible only where someone has the money but chooses not to pay, and not where they can show they cannot pay.
- Gas or electricity bills owed to a current supplier, because the supply could be cut off.
- Phone or internet bills, but only where the service is really important, for example for work, a job search or a disability.
- TV licence payments and court fines.
- Overpaid tax credits, unpaid income tax, National Insurance or VAT, and unpaid child maintenance, where the relevant body can take money from wages, benefits or accounts without going to court first.
- Hire purchase or conditional sale payments where the goods are really important, such as a car needed to get around or a fridge for medicine.
Where a cash advance fits
Citizens Advice lists non-priority debts as credit card and store card debts, catalogue debts, unsecured loans including payday loans, benefit overpayments other than tax credits, unpaid parking charges, water bills (where the supplier cannot cut off the water supply) and money owed to family and friends. A short-term cash advance or payday loan falls in that group. The description “non-priority” does not mean the debt disappears: the guidance says creditors can still take a person to court to get them to pay, so a borrower needs a plan for it once priority debts are under control.
Asking a lender for lower payments
For non-priority debts, Citizens Advice suggests working out a budget to find the available income left after essential bills and priority debts, and then offering each creditor a share of that money in proportion to what is owed, known as a pro rata offer. In its worked example, someone owing twice as much on a credit card as on a store card, with £90 a month available, offers £60 to one and £30 to the other. The borrower writes to each creditor, explains the reason for the debt, states what can be afforded and asks them to freeze interest and charges for as long as payments are kept up.
Limits to bear in mind
Creditors do not have to freeze interest. The guidance says they can refuse, or reduce interest instead of stopping it, and can still take court action after a repayment plan is agreed. Paying less than a credit agreement requires might also make future credit harder to get. Anyone offered a repayment they cannot afford is told not to agree to it, and if a creditor refuses an offer the guidance says to start paying the offered amount anyway and let the creditor know. For a lender’s own duties, see our guide to what the FCA requires of lenders in arrears, and for a formal pause see Breathing Space.
Getting help
Citizens Advice recommends contacting a local office if someone is struggling with priority debts or has more than one and needs help deciding which comes first, and an adviser can negotiate with creditors or explore other solutions. Options such as a debt management plan are covered elsewhere on this site.
FAQs
Is a payday loan a priority debt?
Citizens Advice classes unsecured loans including payday loans as non-priority debts.
Can I ignore a non-priority debt?
No. Creditors can still take court action, according to the guidance, so each debt needs a plan even if it is dealt with second.
Is water a priority debt?
Citizens Advice lists unpaid water bills as non-priority because the supplier cannot cut off the water supply.
Do lenders have to accept my offer?
No. They may refuse or ask for more, but the guidance says a person should not agree to more than they can afford and should start paying the offered amount anyway.
The bottom line
Priority debts such as rent, mortgage arrears, council tax, energy and court fines come first because their consequences are the most serious. A cash advance is normally treated as a non-priority debt, which is a reason to handle it second, not to ignore it. This is general information for England, not financial advice; a free debt adviser can review individual circumstances.