What bills do you pay first?
As the UK’s economy slides into recession and over nine million UK employees remain furloughed under the UK Treasury’s Scheme, one question that many UK consumers are asking, is when they don’t have enough to pay everything, what should they pay?
This question will become even more pressing in the coming weeks and months, particularly as from the August 23, bailiffs and court enforcement officers will once again be able to visit people’s homes to take control of goods for non-payment of debts.
However, deciding what bills you should pay and which ones can wait is not always an easy question to answer.
The first thing you should do is draft a list of your monthly expenditure and then split the items into two separate groups. The first group should be priority expenditure and the second group should be non-priority expenditure.
What is priority expenditure?
Priority expenditure is not a clearly defined list of things you should pay and much will depend on your personal circumstances.
However, generally speaking, priority expenditure includes payments that are more important to pay than others. Examples include:
- Rent and mortgage payments
- Gas and electricity bills
- Food and clothing
- Council tax and water and sewage bills
- Telephone and internet suppliers
- Car finance payments
What makes this expenditure a priority?
The reason this type of expenditure is viewed as a priority over other expenditures is it is seen as essential, meaning not paying it would have more severe consequences for you than not paying other bills.
So, if you don’t pay your rent or mortgage, you may face eviction of repossession; or if you don’t pay your gas and electricity bills, you may face disconnection (or more likely you will have to accept a pre-payment meter). Similarly, if you don’t have enough money for food you may go hungry; and if you get into arrears with your council tax, you may receive a visit from the bailiffs, or in Scotland, sheriff officers.
So what is non-priority expenditure?
Again there is no definitive list of non-priority expenditure, but generally speaking the definition of it is expenditure, which if you don’t pay, will not have as severe an effect as not paying priority expenditure.
So examples of Non-Priority Expenditure may be:
- Luxury items and those things not essential for you to maintain a healthy lifestyle;
- Store cards
- Credit cards
- Personal loans
Luxury items are those items of expenditure that although they are nice to have, are not essential and we all seem to accumulate them over time. They are fine when you can afford them, but if you were brutally honest, they are not essential and you could do without them.
So items like gym memberships, which you may not use anyway; subscriptions for magazines and other online resources, which are not essential. If you’re struggling to cover the cost of bills it’s important to ask, do you really need three film screening services?
It may even mean monthly contributions to charities.
As the saying goes, charity begins at home and if you are struggling to make ends meet, you need to be honest with yourself, can you really afford to continue making these payments?
Are Debt Payments Essential?
Normal debt payments are not generally considered to be essential if you are struggling to pay what is considered to be priority expenditure items.
It is true, however, if you don’t pay a credit card or store card or even a personal loan, bad things can still happen. You may go into arrears, and receive a Notice of Default. Charges may be applied and your credit rating may be affected.
However, none of these things are considered as severe as some of the consequences of not paying priority expenditure items.
So you are not going to have your phone disconnected if you don’t pay a store card, or even have your car repossessed. Likewise you won’t be at any risk of eviction or losing your home. So, yes, bad things can happen, but in the grand scale of things, not paying non-priority bills is seen as the lesser of two evils
Are there alternative solutions to paying these bills?
There are alternative solutions to making normal payments to non-priority expenditure items. This may mean, in Scotland, the Debt Arrangement Scheme; or in England, Wales and Northern Ireland, a Debt Management Plan. Alternatively, in Scotland, you may consider a Trust Deed, whereas, in the rest of the UK, a similar solution is an Individual Voluntary Arrangement.
The important thing is that you do prioritise that expenditure which is most important.
If you are struggling to maintain payments to non-priority expenditure items and want advice, speak with a Creditfix advisor today for free on 0808 253 2966.