But how can a family who may be struggling with consumer debt find their way through the process of getting out of debt and staying out of debt? The answers to this question are varied, depending on the circumstances of the family. But they all involve personal financial discipline.
First, where possible, families should avoid incurring consumer debt except for true necessities like a home, reliable transportation and education. It is so important for a family to be able to distinguish between needs and wants. One family I know bought some plastic cups, filled them with water, and put their credit cards into one cup each, and then froze them. The idea here is to create some space between your desire to purchase something and the use of credit. So, if they had a card break down and need repair without cash to pay for it, they could decide to take the ice block out of the freezer and thaw it for a couple of days while the car was being repaired. But if dad just saw a fishing pole, a golf club or video game that he wanted, the impulse would probably pass before the credit card had thawed out. I liked that strategy.
Second, whenever possible, you should save for your needs and avoid going into debt for them. I was once involved in an ecclesiastical role in working with many young families with financial challenges. In most cases, they were in homes that were larger and more expensive than they could afford. Just because they qualified for a mortgage did not mean that they could afford it. But worse was when they went into consumer debt for furniture, vacations, recreational vehicles, clothing and more. As we would sit down and talk about their finances, it was clear that they had committed to purchases with future earnings that in some cases did not materialize.
So, if you find yourself and your family in debt and are wanting to get out, there are a number of alternatives.
You may want to consider a debt consolidation loan or a home equity loan if you are confident in both your ability to pay them off and in your commitment to not go further into debt. With these loans, you typically do not reduce your overall debt, you just restructure it so the interest rates and payments are more manageable. And while that might offer some relief, that relief will only be temporary unless you avoid further consumer debt.
Another alternative is to engage a consumer credit counseling service to help. These organizations work with your creditors to reduce your interest rates and, occasionally, your total amount owed. Generally, you will make a single monthly payment to the counseling service, plus a small fee, and they will negotiate payment terms and pay your creditors. In this case, your credit accounts are usually closed out so you can't use them, and you commit to not obtain any other consumer credit accounts. If you can live with these limitations, this is a good alternative. But you need to be careful in selecting a counseling service with which you will work. Check them out with the Better Business Bureau and with your state's consumer protection department before signing on to make sure they are reputable, non-profit and in some cases, licensed with the state.
One method I have seen work regularly with fathers and families with whom I have worked is to use a debt elimination plan. Under this plan, you essentially prepare a calendar by month showing the monthly payments of all of your consumer debt in columns. Starting with either the debt with the highest interest rate or the earliest pay-off date, commit as much money as you can budget to pay off that debt. For example, if your payment is $50 per month and you can afford to pay an additional $25 to reduce the principle, start paying $75 per month on that bill until it is paid off, while still making regular payments on your other debts. Then, when the first bill is paid off, apply that $75 per month to the bill with the next highest interest rate, in addition to what you have been paying all along. Let's say that the second bill is usually $150; you would apply the $75 monthly to that bill and pay $225. When the second one is paid off, apply the $225 to your next bill, in addition to what you have been paying all along. Continue this process until you have paid off all of the outstanding consumer debt. We have prepared a sample debt elimination calendar for you to give you a model to follow.
Whatever direction you take, it is important for families today to get their purchasing impulses under control and to make wise financial decisions. Starting today with a program to get out of debt and stay out of debt will help families be stronger and more resilient financially, and better able to meet the financial needs of their families long term.
