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How to get out of debt as a family

How to get out of debt as a family

The feeling that you are drowning in debt is not fun. Instead of feeling that you must solve the problem on your own, get your family on board to achieve debt relief.

Over-indebtedness is a reality for many South African families. Another reality is that the problem is often hidden. Partners or spouses don’t tell each other about their mounting debt, and parents most definitely don’t tell their children that the family is in the red.

The fact is that unless you live on your own, getting out of debt is not something you can do on your own when you have to contribute to the family budget and household expenses. Therefore, the sooner you get the family on board, the better.

Step 1: Face the facts

Stop hiding the problem and come clean. Start with yourself: take stock of your debt situation so that you understand exactly how serious it is. List all your debts, each with its monthly repayment, outstanding amount and how many payments you have missed. This is not a fun exercise, but you can only tackle the problem once you understand it.

Step 2: Speak out

If the debt problem is yours personally, you have to discuss it with your spouse or partner. If your household as a whole is in trouble, involve the other members of your family as well. The idea is not to scare your children, but to get their support for solving the problem. For instance, if the debt is mounting because you didn’t get an increase or because your salary was cut due to short time at work, your partner and children have to understand that they can no longer get everything they ask for.

Step 3: Budget and plan

As a family, take a careful look at your budget and agree on where and how you can save on household expenses. Cutting back on eating out and entertainment might be enough, or you might have to do something more drastic, such as selling one of the family cars.

Also agree on a debt settling strategy. List your debts from smallest to largest and start attacking the smallest debt with everything you have while paying the minimum payments on the rest. Once you’ve paid off the smallest debt, add that payment to the next debt, and attack that one. By doing this, you create a debt-clearing snowball.

Another strategy can be debt consolidation, which entails taking out one big loan to settle all the smaller debts. Due to settlement discounts and a lower interest rate (especially if you work through an employee financial wellness programme such as Bayport Money Solutions), the consolidation loan will be smaller and cost you less than your individual debts.

Step 4: A job for every person

Give every member of the family a debt-busting job. Mom, for instance, is in charge of saving as much electricity as possible, while older brother gets to do the weekly grocery shopping because he is good at sticking to the list. Younger sister and brother get home early from school and cook dinner three days a week so that less money is spent on takeaways. Dad’s job is to plan the family’s travelling to save on petrol and public transport, while older sister is in charge of side hustles to bring in more money.

Step 5: Track your progress

Once you have decided on your strategy, find a way to track your progress. It can be something as simple as a chart behind the kitchen door where you list all your debts. You tick off every monthly payment as you make it and once a debt has been paid off, it is crossed off the list. In this way, everyone can see the progress that is being made.

Step 6: Celebrate every success

Getting out of financial distress is hard work and you have to say “no” to many luxuries and pleasures. So, to keep you and your family members motivated, make a point of celebrating every success. Every time you pay more on the loan you are targeting, announce it at the dinner table with high-fives all around. Do a celebration dance. Cook a special meal. What you do is less important than the fact of celebrating.

Step 7: Savings and an emergency fund

Part of your longer-term healthy-debt plan is to build up an emergency fund and a savings account. The emergency fund helps your family deal with unforeseen expenses, and the savings account is there to fund family goals, such as education. With an emergency fund and savings account, your family does not have to rely on loans to achieve its goals.

Click here for a personal budget planner and for more information on financial planning, visit:

https://www.bayportsa.com/information-centre/

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