Debt comes with many of life’s major milestones: postsecondary education, driving your first car, buying your first house. Keeping your debt manageable can be hard even when you’re single; as a family, your financial situation can be even more complicated.
To start, you no longer have total control over how you spend your money. If you’ve combined your finances with your spouse, both of your spending decisions impact your financial health. You may have entered into your partnership with individual debt and are now also dealing with shared debt such as a mortgage. Raising kids also comes with plenty of financial surprises that can make it hard to keep up.
As a family, financial pressures also become an emotional strain. Money remains one of the most common causes of divorce as debt, overextended budgets, and different attitudes toward money can strain a relationship to breaking point.
Living debt free is about more than just material comforts. It can make your relationship stronger and family life happier. If your family is ready to start living debt free, these are some of the ways you can make it happen.
Start with Debt Help
If you’re struggling to make payments on unsecured loans like credit card bills, we can provide debt help on Vancouver Island to get you out of insolvency. It can be hard to tell when your debt problems become too much. Below are some of the most common warning signs that you are insolvent and should seek relief:
- You’re receiving calls from collection agencies
- You’re missing loan payments, making them late, or struggling to make minimum payments
- You’re transferring debts from one card to another
- You’re putting essentials like food or rent on your credit card
- The total of all your minimum payments (excluding secured loans like mortgages and car payments) are higher than 20% of your gross income
- You find it impossible to save anything
- You can’t imagine a way to get out of debt
There are several options that may be available to you, including filing a consumer proposal or bankruptcy, or less drastic measures. Consumer proposals and bankruptcies may let you eliminate debt and create a schedule for repayment that’s within your means, in addition to protecting you from legal action taken by creditors.
Living Debt Free as a Family
Your situation may not be so dire that you need to pursue debt relief, but there are other steps you can take to pay off your debt sooner and save money in the long run.
#1 Start by Finding Where you Stand
Begin with a reality check. You need to make an honest and complete account of your financial situation. It can feel overwhelming, but take it step by step.
Start by totalling up all your debts from different sources. Every credit card bill, outstanding utility, and loan. This shows you how much progress you have to make.
Next, analyze your spending habits, family income, necessities, and discretionary spending. With those numbers in hand, subtract your total necessities (rent/mortgage, transportation, groceries, etc.) from your income. The number leftover is what you have for either paying down debt or discretionary spending.
If that number is a negative, you will either need to make a major lifestyle change or seek out debt relief, as the problem will only get worse.
#2 Set a Realistic Goal
Now that you have an idea of how much money per month you can use to pay back loans, you can set yourself a realistic goal for becoming debt free.
If the timeline is too long and you want to become debt-free sooner, you will have to lower your basic expenses or find a way to increase your family income.
#3 Budget Your Expenses
Keeping a budget is the best way to control your spending and maximize the amount of money you have to pay back debt. When you make your budget, make sure you include all expenses, including gas, groceries, property taxes, and money you want to save, as well as all income sources. The best way to succeed with money as a family is to create a budget and decide what to do with every dollar.
#4 Choose How to Tackle Debts
There are two ways you can tackle your debts: the avalanche method or the snowball method. These refer to the order in which you pay off different loans.
The avalanche method targets debts with the highest interest rates first. Higher interest rates make credit more expensive, so you wind up paying more over time. Using the avalanche method, you are more likely to have these high interest debts paid off sooner and save money.
The snowball method can be useful if you’re struggling to stick to your goals. It targets your smallest loans first, so that you can cross them off your list. It provides you with a sense of accomplishment that encourages you to continue.
#5 Build an Emergency Fund
Once your bills have been paid off, you’ve already developed some frugal spending habits and financial discipline. Now is the perfect time to set up an emergency fund that you can draw on in the future. An emergency fund is savings you can use instead of relying on credit during a rainy day, whether it’s a surprise expense, medical emergency, or loss of income.
Why Live Debt Free?
Debt is expensive. Interest rates mean that however much you borrow, you’re paying so much more back in the long run. You can check out our debt repayment calculator to see how much debt really costs.
Successfully living debt free means you have more money to save and spend on your family. You can put money that used to go to paying back loans into your mortgage, retirement savings, registered education savings for your kids, and so much more. When you don’t have credit card bills looming over your head every day, life becomes so much less stressful.