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Debt Negotiation Guide:
Stage OneContact Creditors
Stage Two
Prioritise Creditors
Stage Three
Financial Statement
Stage Four
Make Offers
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Ways To Pay Off Debt:
Prioritise Your Creditors
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How To Negotiate Debt Settlements
Assuming you do not have enough money to pay off all your creditors, you need to decide which ones are important to pay, and which ones can wait. This is an important part of managing your debt. When you have all the replies to your letters, you should then put each creditor into an appropriate priority list. The priority does not depend on how much you owe or how nasty their letters are, it is about the possible consequences of not paying them.
You need to split them up into two lists: Priority Creditors and Secondary Creditors.
Ways to Pay Off Debt - Priority Creditors:
These are simply the creditors where there are the most serious consequences if you do not repay them. Think of the ones where non payment could result in being sent to prison, losing your home or losing essential goods or services.
Examples of Priority Creditors:- Mortgage or secured loan (could lead to repossession of your home)
- Landlord if rented property (possible eviction)
- Council tax (bailiff action or imprisonment)
- Fuel companies (disconnection)
- Child Maintenance (imprisonment)
- Income tax or VAT (bailiff action or imprisonment)
- Court fines (bailiff action and imprisonment)
- Hire purchase or rental of goods (repossession of goods)
Ways to Pay Off Debt - Secondary Creditors:
These are the debts you have that do not carry such drastic legal consequences if they are not paid promptly.
Examples of Secondary Creditors:- Credit cards
- Unsecured loans
- Bank overdrafts
- Store cards
- Catalogue purchases
- Informal loans from friends/family
This does not mean that you do not have to pay these creditors. You will need to make offers to pay what you can afford (see Stage 4). If you don't make an offer to pay they can take you to court.
For problems with secondary, or unsecured debts, you can get help from debt management companies if your debts are above a certain amount.
It is important that you get this priority list correct. You can't afford to pay anything that is not absolutely essential, and you can't afford not to pay for things where non-payment carries such serious consequences.
If you prefer more detailed guidance on the process of how to negotiate with creditors to write off a large part of your debts, please refer to the page on how to Learn Debt Negotiation
Go to the next stage in your guide on Ways to Pay Off Debt, which will show you how to create your own Personal Financial Statement.
