Simple Guide To The Different Type Of Bad Debts

To completely understand this article, here is a range of definitions of common terms you 'll come across. A bad debt is borrowing where the debt has not been paid back according to the terms and conditions of the loan contract. A debt is considered bad where is it not likely that the loan provider will ever be able to get their money back. A bad debt on your report will make it less easy for you to borrow funds in the future.

The National Debt Line is a national call-in helpline. It provides free, impartial and confidential counsel to persons on settling debt problems in the United Kingdom. Their telephone helpline is accessible seven days a week and they also host an internet website that has plenty of practical assistance and counsel on it. The National Debtline is a branch of the Money Advice Trust (MAT), which is a registered charity. MAT offers consumers a strategic approach to controlling extreme debt so that they will regain control of their money matters.

There are two types of debt - priority debts and non-priority debts. If you are experiencing financial difficulty and are unable to service all your debts, it is important that you understand the type of debts you have. That way, you can make sure that any money you have left every month to pay for debts goes towards the most important (ie: the priority debts) first.

Priority debts
These debts are where the companies you owe money to - the creditors - have the power to take severe legal actions against you if you fail to pay. The amount of the debt does not make it a priority, but what the creditors can do to recover their money from you that makes it a priority debt.

Examples of priority debts:
. Mortgage arrears - your mortgage lender can repossess your home
. Rent arrears ? you can be evicted by your landlord if you are in arrears
. Fines - fines such as those for traffic offences or magistrates court fines - child support, maintenance, council tax or rates. The Court can instruct bailiffs to possess your goods. If you still owe money after this, you can be sent to prison
. VAT and income tax - you can be imprisoned for non-payment of income tax or VAT or at the very least, made bankrupt
. Hire purchase - it depends on what the item, is, but, for example, it will be a priority debt if it is a car and you need it to get to work - if you do not pay the debt, it will be repossessed.
. Utility debts (eg gas, electricity debts) - your utility supply will be disconnected

These need to be repaid before your non-priority debts, so do not offer to repay any of your non-priority debts before dealing with these.

For non-priority debts, you are unlikely to lose the roof over your head or get imprisoned. However, you still do need to make an offer to pay ? otherwise your creditors will still take you to Court - and could send the bailiffs in.

Examples of non-priority debts:
. Overpayments on benefits
. Arrears on credit or store cards
. Overdrafts and loans (unless the loan is secured against your property, then it becomes a priority debt)
. Catalogue arrears
. Hire purchase - goods on HP that are non-essential, such as sofa or audio equipment

Article Source: http://www.articlemonk.com

James Miller has several interesting and insightful articles written not simply about personal loan need but also relevant to information about secured loans or remortgage banks.

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