Credit Reference Files
IVA’s & Bankruptcy
Credit Reference Files
Debt Management Plans
IVA’s & Bankruptcy
June 8, 2020
Debt Calculation: Priority Debts
Taking the decision to stop gambling, can seem like an overwhelming prospect. However, sorting through your finances can seem worse because this will often be one of the biggest acknowledgements of just how bad things have got. Having gambling debt will often have an added layer of shame to it. It certainly did for me, and I just wanted to hide under my duvet hoping it would all go away! When dealing with debt though, it’s vitally important not to bury your head in the sand. Sorting your finances will be uncomfortable but I absolutely guarantee that this will be the best thing you can do to ensure future happiness and avoid a whole other world of stress. This is where identifying priority debts comes in and it’s your starting point to getting back on track.
What is a priority Debt?
Put simply, a Priority Debt in one where the consequences of not paying it are more severe than not paying another. It is likely that as a former gambler, you will be carrying quite a lot of unsecured debt because these would generally have been the easiest lines of credit open to you. Unsecured debt will include things like personal loans, credit cards and payday loans. Unsecured debt simply means that they are not secured against an asset such as your house or car. The good news is that unsecured debts are usually not priority debts. So what is a priority debt and why is it a priority?
Priority debts include things such as mortgage repayments or rent. They also include utility bills such as gas electric and water. So if you didn’t pay your mortgage or rent you could lose your home, and unpaid utility bills may ultimately mean that you will have your supply disconnected. It’s clear to see why these would be a priority because they provide the daily essentials that you cannot live without.
However, other examples of priority debts are county court judgements, court fines, or hire purchase agreements. A failure to pay CCJ’s or court fines may result in a visit from bailiffs looking to recover property from your house to cover the cost of the debt. A car which may be on hire purchase does not belong to you so this too could be recovered if you don’t pay that agreement.
So essentially, a priority debt is one where the consequences of not paying will cause you a significant loss or hardship. In the early stages where you may well be overwhelmed with bills piling up, it is therefore important that you focus your attention to these debts as opposed to a credit card bill. Also remember that you are not alone, and if you’re in this situation you can get professional help free of charge.
Non- Priority Debts
As discussed above, a non-priority debt is one where the consequences of not paying are less severe. For example, you won’t be in danger of losing your home for failing to pay a credit card bill. That’s not to say that you can ignore these debts because they are important too. Once you have focused on your priority debts then these should come next because failing to pay them will also have consequences that you need to avoid.
Once you have established what your priority and non-priority debts are, you should start to make a list of them along with the total amounts you owe for each debt. You should also note the monthly repayment amount for each debt. Both of these types of debt will then form the basis of your budget which will include all of your monthly income and expenditure. Once you have the debts listed, it’s time to tackle your other non debt related expenditure, and as this won’t be quite as clear cut, it’s important to be honest with yourself.
I remember having to do this a couple of times before eventually taking out an IVA. It can be quite difficult because the items you will have to list are often those where you’ll have no clear idea on what you spend on a monthly basis. For example, I would never buy shoes on a monthly basis yet at some point in the year I would do. The way to work that out would simply be to estimate the total cost you’re likely to spend on shoes in a year and divide by 12 to give you your monthly shoe budget.
So obviously, listing these items won’t just include shoes. You need to think of everything here and I remember having to think of literally everything I would spend money on in a typical day. It’s important to be as thorough as possible because it all mounts up. If I were to do it now, examples in my life would look something like this:
Food, petrol, car insurance, car tax, car repairs (don’t forget tyres,) MOT, car cleaning, screen wash, breakdown cover, tobacco, alcohol, gym membership, mobile phone, sky tv, other subscriptions, leisure, socialising, dog food, vet bills, dentist, prescriptions, opticians, clothing, footwear, general groceries, newspapers, public transport, holidays, eating out…
The list can be extensive but it’s important to document it for a couple of reasons. Firstly it will allow you to realise how much you spend before presenting that to someone who can help with debt management. Secondly it will allow you to see clearly where you can make savings.
The Big Picture
If you’ve followed the advice above, then you should now have a clear idea of where your money is going. Tackling your gambling debt has a lot to do with being organised and being honesty. If you are to recover from gambling addiction then organisation and honesty are extremely important because the bigger picture is also about responsibility. If you’re anything like me then you will have been making the most horrendous financial decisions for quite some time. These will have been done whilst blinded by a powerful addiction which has made you reckless and irresponsible. I don’t mean to sound harsh and only say it because I know it was certainly true of myself.
Therefore, the antidote to this situation is the complete reverse. Organisation will set the framework for order from chaos. Honesty will allow you to finally see your world for how it is- no matter how painful that might be. This is the responsibility needed to fix the situation and once you’re armed with it, you will finally be able to break free of both the addiction and debt cycle.
There’s little doubt that this is a scary place to be, but once you have a clear overview of your financial situation, you will be able to pass it to debt management charities who will know exactly how to help you.
Yes it may be scary, but you’re about to get your life back and that will be your biggest win of all time.
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