Are you a single mom who wants to pay off debt for GOOD?
If you live with consumer debt, you are not alone. According to U.S. Federal Reserve data U.S. households have on average $15,863 in credit card debt and $33,090 in student loans, while the Consumer Financial Protection Bureau reports that a full 52 percent of credit bureau filings are for medical debt.
On one hand, if you find yourself drowning in debt, rest assured you are not a weirdo. But don’t use this fact as an excuse not to work like crazy to pay off your debt. If you live month-to-month owing others money, then the money you earn is not really yours. You are enslaved to your debt. This affects your relationships, mental health, career choices. Scraping by to may loan payments prevents many families from ever building wealth. That is a stressful, exhausting way to live. I know – there have been times in my life when I had as much as $10,000 in credit card debt, and I left college with $20,000 in loans (in 1998 — $29,300 in today’s dollars).
The upside to the personal debt crisis is that there are tried and true methods for getting rid of it – and plenty of analog and tech resources to help. Here is my step-by-step guide to getting out of debt, once and for all.
Pay off debt for single mom
1. Get real with yourself. Collect statements for each and every one of your debts: credit cards, medical bills, student loans, car note, mortgage, home equity line, personal loans from your parents or cousin. If you are married or live with your partner, get them involved. Lay these out on the kitchen table. In paper. Feel them in your hands. Look the in the eye. I’m talking 100 percent transparency.
3. Create a list of all your debt, including interest rates, monthly minimum payments and any deadlines. Mint.com’s monthly goals feature is a good place to start. Other good debt repayment apps include Debt Payoff Assist, ReadyforZero, and Debt Control Free.
4. Create a monthly budget, and figure out how much you can afford to pay towards your debt. It is time to get serious, cut out any extra spending, and lower your overhead. Remember: Overspending is how you got in this pickle in the first place.
5. Research lower rates. Depending on your credit score, you may qualify for credit cards with lower rates.
- First, see if you qualify for a 0% balance transfer. This post on MagnifyMoney is a good place to start. This is a GREAT way to pay off debt, and save a lot of money on interest along the way. It only works if you are very organized, read all the fine print, and make sure you pay the premiums on time, and either pay off the balance or transfer the balance before the end of the promotion period.
- Another way to get a better rate on your card is to call your current company and simply ask for a better rate. First, see what you qualify for on a site like Gobankingrates. Here is a script:
Hi, as you can see I am a longtime cardholder, and I love using your product. I am committed to paying off my debt and improving my credit history, and I’d love to stay with you. However, I need a better rate on my balance. Based on my research I can get a [insert honest quote you received from another card] rate. Can you match it or do better?
6. Call the holder of any outstanding medical bills and negotiate. This article from About.com offers great tips for negotiating medical bills.
7. Research student loan consolidation through StudentLoans.gov. Also, private banks are starting to offer student debt consolidation and refinancing. Related post: How this millennial mom saved $40,000 on her student loans
8. Decide: Debt Avalanche or DebtSnowball? These terms are lingo for the two main methods for paying off debt.
- Debt Snowball: Pay off credit cards or loans with the lowest balances first. The advantage is that you get the psychological and emotional thrill of paying off accounts quickly.
- Debt Avalanche: Pay off accounts with the highest interest rates first. The big perk of this method is that you save more money by depleting high-interest debt sooner.
8. If you’re totally overwhelmed with this process, or truly believe that you cannot dig out of debt on your current income, get professional advice. A credit counselor will help you create a debt repayment plan, which may include debt consolidation – in which case the credit counseling agency will consolidate all of your debt into a single payment that is at a lower interest rate than all of your debt combined. Two places to start your search for a reputable credit counselor:
- National Foundation for Credit Counseling
- Association of Independent Consumer Credit Counseling Agencies.
9. Set up automatic payments. If you are going the DIY repayment route (and not using a counseling agency), set all the payments on autopilot.
10. Use tricks to pay down debt even faster. These include:
- Put tax refunds towards your debt.
- Allocating any job raises towards the principal.
- Sell off unused furniture, clothes, electronics, books or household items and put all proceeds towards debt.
- Start a side hustle – take on work as a virtual assistant, babysitting, freelance gigs in your industry – and commit that income to debt.
11. Celebrate! You did it! You paid off that effing debt! YOU ARE DEBT FREE!
12. Don’t think you’re too cute. Now is not the time to go shopping! Now is the time to focus on saving and other financial goals.
13. Keep that budget!
14. Keep monitoring your credit score. Mint.com automatically updates for free your credit score – and displays in proximately in the app. Or, use Credit Sesame’s free score monitoring service, which updates monthly.