It’s one thing to handle debt when you got into your financial situation on your own. But as a family, it becomes a complicated beast, and it can be too easy for your relationships to become tangled up in financial problems. When you’re tackling debt as a family, you need a plan that will help you communicate, get on the same page, and share your goals for debt freedom!
1) Find Your Goals
The first step can determine how successful you are. When you’re at the store debating a purchase you really want but don’t actually need, it’s easy to give in, especially if you’ve been budgeting and trimming for months already.
Not when you have a powerful motivation to put that extra cash toward your debts. You need a powerful reason to get out of debt, one that will be shared by both you and your partner. Some great motivations include:
- Buying a house;
- Saving for your retirements;
- Saving for your kids’ education funds;
- Finally going on that dream family vacation.
These are powerful motivations that benefit your family. More often than not, reminding yourself will be enough to resist the urge to impulse buy.
2) Review Your Position
Once you have a strong motivation, you need a bit of a financial reality check. You need to see where your family finances are and how long it will take you to pay everything back. There are a few essential pieces of information you need:
- Your combined household income after taxes;
- Your necessary monthly expenses;
- The amount leftover that you can put toward debt.
Credit counselling services can help you look objectively at your financial position, help you manage money, and provide you with debt relief and family budgeting tools that can put your goals within reach.
3) Reduce Your Interest Charges
Debt is expensive, but if you’ve been paying attention to how your credit card bills work, you already know that. Every month, interest charges gobble up the money you pay back, making it harder to gain real headway.
One common way to reduce interest charges is to take a debt consolidation loan at a lower interest rate. There are several downsides to this approach, however:
- You need a good credit score to qualify for lower interest rates;
- If you have a poor credit score, lenders might want home equity as collateral;
- Once you pay off credit cards, you can use them again – but you still owe the money on another loan.
Talk to a certified Credit Counsellor with a non-profit credit counselling agency to see if a loan is right for you. There may be a better alternative that they can provide, such as a Debt Consolidation Program, that will also reduce interest rates without taking out a new loan. A certified Credit Counsellor instead talks directly with your creditors for debt relief.
With a common, powerful goal and a realistic picture of your finances, you can make a spending plan, and you’ll all be more likely to stick with it.
It’s important to be open and communicate with members of your family when you’re cutting spending. When the kids wonder why they can’t get a certain treat, be honest, but focus on the positive side. Tell them you’re saving for a bigger house, their future education, or a family vacation. Share your post-debt goal. It could even be an important financial lesson for them.