Poor financial management can plunge any type of family into debt. If you are disorganized, you risk financial problems, whether you earn millions or earn just enough to get by. However, to get out of debt, your financial status or social class does not matter. What matters is the mindset with which you approach your debt problem as a family. To resolve your family’s financial bind, every family member should form healthy financial habits.
10 Tips on How to Get Out of Debt as a Family
Are you ready to embark on the journey to financial freedom? If you are, here are ten tips on how to get out of debt as a family.
Get Professional Debt Help
This is one of the fundamental tips for getting out of debt as a family. Most people who get into debt do not realize that poor financial decisions cause their predicaments. Getting assistance from a certified financial advising agent could help a family identify and correct their financial mistakes.
Financial counselors help clients to get their finances in shape by providing them with various services such as estate planning, investment management, and income tax preparation. They also help clients in debt to plan a budget, analyze and restructure their debts and create a long-term plan for mitigating their financial hurdles.
Plan a Budget
The most important skill you will learn from a financial advisor is to plan for a healthy financial future through a budget. If you are overwhelmed with debt, you are like a person with an open wound. It would be best if you had this tip on how to get out of debt as a family. The most important thing to do for recovery is to stop the bleeding. In this case, it is to manage your family expenditure.
The financial counselor will map your cash flow and identify problem areas. The financial advisor will require you to provide financial documents like credit card bills, bank statements, pay stubs, installment loan statement, tax returns, and anything else that impacts your financial bind. Although speaking about your spending habits might be embarrassing, you need to be as open and honest as possible for the consultation to be productive.
After considering your financial situation, your advisor will draft a budget that covers all your necessities without adding more debt to the pile. The budget will trim off all non-essential expenses to create more resources for settling the existing debts. The advisor will also assist your family in adjusting to a more sustainable lifestyle.
Analyze and Restructure Debts
There are different types of debts. Some debts, such as credit cards, are toxic. They charge very high-interest rates and generate exorbitant fines on late payments or default. Others, like mortgages, have low favorable interest rates and full tax deductibility. Whichever the debt, if you file or are about to file for bankruptcy, you will need a bankruptcy lawyer to help you mitigate your financial binds.andlt;/pandgt;
The bankruptcy attorney will analyze your debt and prioritize the debts before creating a reasonable debt payback strategy. The most urgent and delinquent debts are ranked at the top, while the more modest debts are listed at the bottom. For example, if you have a little money left that you could use to settle some of your debts, you should first settle for the debt that accrues most interests and penalties.
An attorney will help you to reconstruct your debts into more productive options. For example, a banking institution could give you a second mortgage if you own a piece of real estate with equity. You could use the loan provided to pay off urgent debts. You could also use it to clear a considerable chunk of the existing mortgage because it has a low-interest rate.
When seeking debt relief, it’s important to work with a debt relief attorney rather than a financial advisor. Financial advisors often direct clients on what to do without doing much else. On the other hand, attorneys will assist you in handling all communications and file all legal documents whenever necessary. The attorney will also advise how to increase your credit score among lending institutions.
Create a Long-Term Plan
The other tip on how to get out of debt as a family is to create a long-term plan. Sometimes the goal of hiring an attorney or a financial advisor is not to settle all the debts immediately. Once the debts have been considerably reduced, the lawyer will help you create a long-term plan to help you gain more financial stability as you pay off the debts.
For example, if you have a family, you might need life insurance to help your dependents get by in the event of your death. In this case, the lawyer may recommend paying down the high-interest debts first, then slowing down the debt payment to start servicing life insurance. After some debts are fully settled, the lawyer may also suggest taking on a retirement savings plan.
File for Bankruptcy
The other tip on how to get out of debt as a family is to file for bankruptcy. Filing for bankruptcy relieves you of your financial burden. This process involves legal issues that you cannot handle by yourself. A bankruptcy attorney files the bankruptcy on your behalf. If you do not have the money to hire bankruptcy agencies, you can go pro se or file the case yourself.
There are several types of bankruptcy. Understanding each one will help you file for the right case, especially if you are going pro se. Whereas all bankruptcy options are designed to relieve debt, they are not the same. It is therefore important to ensure that you are eligible for a certain type of bankruptcy before you file a case for it.
File for Bankruptcy Chapter 7
This is the most common type of bankruptcy for individuals. Once you file this type of bankruptcy, a trustee is appointed by the court to oversee the liquidation or sale of your assets. Any remaining debts like medical bills and credit card debts are erased. However, this bankruptcy does not relieve you of debts like government taxes and student loans.
Chapter 7 attorney may not help you stop the foreclosure of a property. The best that the lawyer could do is to postpone it. The only way to keep your property after filing for this type of bankruptcy is to recommit to the debt. It’s important to note that this form of bankruptcy is only issued to people that the court has proven beyond doubt that they cannot pay back their debts.
In some states, the court does not require you to sell personal possessions like a house and car to pay the debt. In some states, however, the court may evaluate your ability to pay creditors using disposable income. If your income is too low to settle your debts, the court qualifies you to file for chapter 7 bankruptcy.
File for Chapter 13 Bankruptcy
Filing this type of bankruptcy is another tip on how to get out of debt as a family. This type of bankruptcy allows you to formulate a monthly payment plan to gradually pay the debt over three to five years. The payment duration depends on the amount of debt you have and your monthly income.
Although this type of bankruptcy allows you to keep your assets, the court monitors all your expenditure. On the bright side, this type of bankruptcy buys you time to bring your debt, such as mortgages, up to speed without losing your assets if you have a secured debt of about one million dollars. You also have to keep your taxes up to date.
File for Chapter 12 Bankruptcy
This is a great tip on how to get out of debt as a family of farmers or fishermen. It is similar to chapter 13 bankruptcy, but it is more flexible. It also has a higher debt limit that prevents you from having to foreclose on your property.
File for Chapter 9 Bankruptcy
Filing for chapter 9 bankruptcy is another great tip on how to get out of debt as a family, especially if you live in a municipality. The chapter 9 bankruptcy lawyer assists the families living in a school district, in reducing their debts while protecting them from their creditors.
Avoid Illegitimate Debt Relief Programs
Not all debt relief programs can get you out of your financial hole. Numerous scammers are looking for desperate people in debt to scam the little they have. So if the program offers you a magical way to get out of debt, take another look at the offer. Such offers often involve excessive charges that could plunge you into more debt.
If you have to get help from a debt relief program, ensure it is authentic by checking whether they are registered under the Consumer Financial Protection Bureau. However, getting recommendations from military organizations, credit unions, and universities would be safe. Keep in mind that the easier it comes the dearer it is.
Keep Accounts Open Even After They Are Paid Off
Most people who finish paying off their credit card debts are tempted to close their accounts. However, this action often hampers your financial recovery. Once you finish paying a credit card off, overcome the urge to close it and keep it open. Doing this increases your credit score for having a long-standing credit account.
Avoid Getting Money from Your Retirement Fund
This tip on how to get out of debt as a family is quite significant. Never get money from your retirement fund to settle a debt because it threatens your future. Although this could be a quick method out of debt, you will attract huge penalties for withdrawing your retirement fund prematurely
Consider Balance Transfer and Debt Consolidation
If you are overwhelmed with payments and are struggling to make ends meet, you should consider a balance transfer. A consolidated debt will eliminate extra payments quickly. However, you might get into more debt than you were initially without a change in spending and debt payment habits. You would rather develop the habit of consolidating debt payments rather than debts. This will keep you from getting new debts.
Involve the Whole Family
The last tip on how to get out of debt as a family is to work together as a family. Change the culture where only one family member is responsible for the household’s finances. Keeping the financial situation from the rest of the family denies you the chance to pull your resources together and formulate a strategy to cut costs and daily expenditure. This strategy may include eating in more often, creating a budget, and sticking to it.
Involving all the family members also makes it easier to follow the budget and for all family members to adjust to the new norms as quickly as possible. Moreover, holding a hard financial conversation with your kids helps them to develop strong personal finance skills that they will use to avoid getting into debt when they mature.
Getting out of debt is hard. But it becomes even harder when financial responsibilities are laid upon one person. To overcome a financial bind as a family, you need to bring all members on board. If you have children, it is good to have hard conversations with your children because it also assists them to develop financial skills. It will also enable your family members to adjust to new spending and consumption habits quicker.
Other tips on how you could get out of debt as a family is getting financial counseling and assistance in creating a sustainable budget. You can also file for bankruptcy if your income is not sufficient for you to settle your debts. Moreover, you should avoid getting quick debt settlement solutions because you spend more than you owe. You should also avoid using your retirement fund to settle your debts. Find other means like getting debt relief to reduce your debt.