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% 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.
A step-by-step guide to getting out of debt for single moms
- Be honest with yourself about your personal finances
- Make a list of all of your debts and expenses
- Create a monthly budget of all your expenses and debt payments
- Choose a method for paying off debt: Pay off smallest, or highest interest debt first?
- Negotiate rates
- Research lower credit card and loan rates
- Sell stuff to earn money to pay off debt
- Get a side job, and put that money towards debt
- Consider professional help to pay off debt
1. Be honest with yourself about your personal finances
If you are stressing about your debt and credit, likely you are avoiding the facts of your financial situation. Below I will show you how to easily manage all your debt, bills and income, but first you have to deal with the emotional side of this problem.
- Be honest with yourself about how your money situation makes you feel. Living paycheck-to-paycheck is really stressful, right? Moving money around each week to make sure some bill clears is a shameful waste of energy and time. Living beyond your means is scary. Not having control of your money is embarrassing. Own all those feelings. They are normal, and they are real.
- Face the facts about how you got here. It is easy to blame your parents for not teaching you about money, or the federal education system for failing to make personal finance mandated schooling, or banks for ripping people off, or your boss for underpaying you, or your ex for screwing you in the divorce, or your friends for pressuring you to overspend.
- Ultimately, you are responsible for your money. You are smart and resourceful, and trust me: dumber people have gotten out of debt and even gotten really stinking rich. You can figure this out, and I will help you. But first you have to own your responsibility in this mess.
- Focus on the future. Think about how incredible it will feel to have all your bills set up on autopay, and never think about them because there is plenty of cash in the bank. Imagine how amazing you will sleep knowing you and your kids' future is secure. Visualize how powerful you are each day as you make decisions about your career, your children, your home and your life.
2. Make a list of all of your debts and expenses
Time to look the personal finance monster in the eye and lay out the FACTS.
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.
My favorite app to help make this as simple as possible is MoneyPatrol. This app automatically pulls in all your income, debt, and expenses from your bank accounts. From there you can set goals — and reach them! No matter what your financial goals are, it is so handy, so satisfying to see all these numbers in one place, and watch them move to meet your goals, day after day.
3. Create a monthly budget of all your expenses and debt payments
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. Imagine how AMAZING it will feel to be debt-free! Check your student loan information at the National Student Loan Data System.
4. Choose a method for paying off debt: Pay off smallest, or highest interest debt first?
Debt snowball method, or debt avalanche payoff = lingo for the two main methods for paying off debt.
What is the debt snowball method?
Debt snowball is a debt repayment method to pay off credit cards or loans with the lowest balances first. Finance guru Dave Ramsey made the debt snowball method popular, and for good reason: The advantage is that you get the psychological and emotional thrill of paying off accounts quickly. Imagine if you could actually remove a whole credit card account from your PersonalCapital account?
Here is how to use the debt snowball method:
- List your debts from smallest balance to largest balance — regardless of interest rate.
- Make minimum payments (set up autopay) on all your debts except the debt with the smallest balance.
- Pay as much as possible on your smallest debt.
- Repeat until each debt is paid in full.
In the example below, this mom has $44,500 in combined credit card, car and student (“Other”) debt:
Using the snowball debt payment method you can see here how quickly she was able to pay off her debt, compared with if she were to simply pay the minimums on each of these four accounts:
In fact, using the snowball debt program, she slashed her debt to $0 in 3 years, 7 months, compared with 13 years!
This quicker, more aggressive repayment saved her $4,853 in interest.
What is debt avalanche?
This is a method 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.
Here is how to use the debt avalanche method:
- Using MoneyPatrol or even using on the back of an envelope, write down all your debts, including the interest rate (or APR).
- Arrange the debts from the one with highest APR, to the lowest.
- Aside from #1, with the highest interest rate, set the rest of your student, credit card, auto and other debts on auto-payments for the minimum amount due.
- Put all your extra money into paying off debt #1 first: tax returns, bonus at work, raises, gift money, side gig income.
- Once that debt is paid off, move to #2. Repeat until all the debts are paid off.
Here is an example of the avalanche debt method:
As an example, a single mom I know budgets $500 towards debt payoff. She uses MoneyPatrol to document her debt goals and strategy, and create a budget. Her loans include:
- $1,000 due on a credit card debt with a 20% interest rate
- $5,000 left on her student loans, with an 8% interest rate
- $1,250 monthly car payment at a 6% interest rate
To keep things simple, let's say each debt has a minimum monthly payment of $100.
This mom will set her car and student loan payments to the minimum of $100 each.
The remaining $300 of her monthly debt budget is devoted to her highest-interest debt: the credit card at 20%. The card debt will be entirely paid off by the third month. Whoo hoo!
Now, the extra $300 (plus the current $100 minimum = $400 monthly) goes toward slashing the second-highest interest-bearing debt: the student loans. That will be paid off after 1 year and 1 month. Yay!
Finally, all $500 goes to the debt with the lowest rate of interest, the car loan, which will be paid off three months later.
5. Negotiate rates
How to negotiate your credit card rates
Another way to get a better rate on your card is to call your current credit card company and simply ask for a better rate. 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?”
Negotiate medical and other debt
Call the holder of any outstanding medical bills and negotiate.
This article from The Balance offers great tips for negotiating medical bills.
6. Research lower credit card and loan 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 credit card. This is a great way to pay off debt, and save a lot of money on interest along the way.
Resource: Find a balance transfer credit card
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. But be honest with yourself: If you are not good with this kind of bookkeeping, this might not be a good option for you.
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.
7. Sell stuff to earn money to pay off debt
As long as you are cleaning out debt, you might as well also cleanse your closets, drawers, garage and basement. Declutter your home, sell unwanted stuff, and put that extra cash towards your debt paydown program.
- Sell your old gold and diamond jewelry at CashforGold
- Sell your old silver jewelry at CashforSilver
- Unload that wedding ring or engagement ring at Worthy
- Sell old electronics, iPhones, iPad, books, DVDs
andCDs at Decluttr
- Unused clothes, shoes, handbags
andaccessories go to ThredUp or go to a local consignment shop
8. Get a side job, and put that money towards debt
Then, when the loans are all put to bed, this new income stream goes towards savings, investments, vacations, a home — the sky is the limit!
FlexJobs is my favorite job board for all positions that are work-at-home, remote, telecommute, remove — full- and part-time. Check out FlexJobs. (Remember to use FlexJobs promo code FLEXLIFE to get a discount.)
Here is a roundup of some of my favorite high-paying work-at-home jobs that can be done part-time, or full-time. Most have the potential to earn $100,000 per year or more, including:
- Virtual assistant
- Social media manager
- Travel consultant
- Corporate event planner
- Coder / programmer
- Clinical research coordinator
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9. Consider professional help to pay off debt
If you’re totally overwhelmed with the debt-pay-off process, or truly believe that you cannot dig out of debt on your current income, get professional advice.
- Large sums of medical debt that you have no immediate way of paying off
- So many loans and credit cards that you can't manage on your own
- Poor credit, which means high interest rates, which makes payoff even harder, and you don't know where to start to stem the chicken-and-egg problem.
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.
How to get professional help to pay off debt
Get your credit score
Some debt counseling programs may not work with you if your credit is low. So, check your credit score and get your free credit report, mama!
How to increase your credit score
If you found your credit score is low — below 700 — then you likely will find it hard to qualify for a debt consolidation loan, a new credit card, or an interest rate reduction from your current bank.
You need to improve your credit score fast.
Thankfully, there are some steps you can take now to improve your credit score.
Correct errors on your credit report
Legally, every person in the United States is entitled to correct errors on your credit report. It is not uncommon for your score to be hurt by old debts that have actually been paid off (but still appear on your report), debts or bankruptcies that are not yours, or legitimate debts that erroneously are reported multiple times.
Getting these red marks off your credit report is within your legal rights, but it can be a huge pain in the butt. If you are strapped for time and patience, it can be worth the investment to pay a reputable credit repair company to take over this task for you.
The Credit People is a great, low-cost credit repair company that has helped more than 100,000 people fix their credit and move forward with their lives. Fees start at $19.
Learn more at our post: 5 legit ways to consolidate credit card debt
Wealthysinglemommy.com founder Emma Johnson is an award-winning business journalist, activist and author. A former Associated Press reporter and MSN Money columnist, Emma has appeared on CNBC, New York Times, Wall Street Journal, NPR, TIME, The Doctors, MONEY, O, The Oprah Magazine. Winner of Parents magazine’s “Best of the Web” and a New York Observer “Most Eligible New Yorker,” her #1 bestseller, The Kickass Single Mom (Penguin), was a New York Post Must Read. A popular speaker, Emma presented at the United Nations Summit for Gender Equality. Emma's Top Single Mom Resources.