Smart Money Moves: Tips for Moms to Get Out of Debt and Stay There
Welcome back to my series, “A Mom’s Guide to Financial Freedom.” Today we are talking about debt and the pressure it places on families and how you can reduce your debt or eliminate it completely. Going into debt always seems like a good idea at the time, but it very seldom is in the long run. We learnt this the hard way.
Understanding Different Types of Debt: For the sake of simplicity, we are going to split the types of debt but I am not sure I believe that there is a good debt. There are two main types of debt: good debt and bad debt. Good debt is debt that helps you build wealth or increase your earning potential, such as a mortgage, a business loan to get your business started or your car. Bad debt, on the other hand, is debt that does not provide any long-term benefits, such as credit card debt or high-interest loans taken out to pay for things like holidays.
Tips for Managing Debt:
Create a Debt Repayment Plan: Start by listing all of your debts, including the balance, interest rate, and minimum monthly payment. Be honest when doing this, include everything – your store accounts, medical bills, mortgage – everything that you are paying off needs to be included, even the small amounts. Once you have done this, prioritize your debts based on interest rates, focusing on paying off high-interest debt first. This approach, often called the debt snowball or debt avalanche method, can help you save money on interest and pay off your debt faster. Once you have a clear record of the debt, you can also see what can be paid off quickly, place the focus on those amounts.
Reduce Your Interest Rates: High-interest rates can make it difficult to pay off debt. Consider consolidating high-interest debt with a lower-interest loan or balance transfer credit card to reduce your overall interest costs. This can help you pay off your debt faster and save money in the long run.
Cut Back on Expenses: To free up more money for debt repayment, look for ways to reduce your expenses. This could include cutting back on non-essential expenses such as dining out or entertainment, or finding ways to lower your utility bills. If you are able to save, be disciplined and use that money to pay off debts to help reduce the debt (and your anxiety).
Increase Your Income: Increasing your income can help you pay off your debt faster. This is where increasing your income streams can be very powerful. If you funnel all extra income into your debt, you will be able to pay it off quicker, getting you closer to financial freedom.
Negotiate with Creditors: If you’re struggling to make payments, contact your creditors to see if they’re willing to lower your interest rates or work out a payment plan. Many creditors are willing to negotiate, especially if it means they’ll get their money back. Consider going under debt review to help you get your debt under control.
Avoid Taking on New Debt: While you’re working on paying off your existing debt, avoid taking on any new debt that could derail your progress. This means resisting the temptation to use credit cards for purchases you can’t afford and avoiding taking out new loans unless absolutely necessary. This really is non-negotiable. While you are tackling your debt, do not take out more. If you don’t have the cash to afford it, don’t get it. It is that simple. We haven’t taken out additional debt for over 5 years and while sometimes it is stressful, we have managed to get through every time, without adding debt.
Managing debt can be challenging and if we are honest, a little depressing, but with a solid plan and some discipline, you can pay off your debt. Start by creating a repayment plan, reducing your interest rates, cutting back on expenses, increasing your income, negotiating with creditors, and avoiding new debt. These strategies can help you take control of your finances and work towards a debt-free future.
