Which debt first?

W ITH prices set to rise following the increase in VAT to 20 per cent, it's a great time to improve your financial know-how.

Our message this week is that not all debts are equally important. It seems obvious that paying your rent or mortgage is more important than your credit card but if you receive threatening letters from the bank it's easy to lose perspective. Remember that just because a creditor (the person you owe money to or their collector) contacts you frequently and pressures you to pay does not mean they are the most important.

The debt recovery procedure can be worrying and stressful without explanation but over the weeks we will explain the debt recovery procedure, sorting fact from fiction. Today we look at Paul's debts to see which should be dealt with first.

Problem: Paul was made redundant from his job at a building company 6 months ago. He is receiving Job Seeker's Allowance and housing and council tax benefit. The reduction in income means he struggles to repay debts he could manage before. He owes £500 rent, £270 council tax, has an overdraft of £750 and a credit card debt of £2,000. The bank contacts Paul daily, demanding payment and saying they will default his account and pass it to a debt collection agency. He doesn't know what this means and is worried. He is tempted to pay money to the bank before paying any towards his rent.

Action: First Paul needs to work out which debts are the most important: in his case rent and council tax. Debt that should always be dealt with first include: mortgage, rent, council tax, gas, electricity and water, court fines and benefits overpayments. These are 'priority debts'.

When these debts have been sorted then look at money you owe to a bank (credit cards, overdrafts and unsecured loans), catalogue, shop, doorstep lender or old fuel supplier. These are 'non priority debts'. Non payment of priority debts can have results that are harder to deal with, such as disconnection from an essential service (gas and electricity) or the loss of your home. By contrast, creditors of non-priority debts generally can't take any action unless they go to court first.

If you aren't sure which of your debts are the most important, please come and see us at on the 2nd Floor, 48-54 West St, Old Market, BS2 0BL at the times listed below. BDAC is a registered charity and all of our services are free. If you would like to make a donation or volunteer please email carol@bdac.org.uk and follow us on Twitter http://twitter.com/BDACBristol

Bristol Debt Advice Centre (BDAC) Tel: 0117 954 3990 – for more information

Drop-In: 9:30-12:00 on Monday mornings (those on benefits only) or Tuesday mornings from 9:30-12:00. Bring proof of income and your debt paperwork. Telephone Advice: Thurs mornings from 9:30-12:00. See www.bdac.org.uk/