Hello friends, and thank you for stopping by to read Single Women and Debt Reduction. This is #6 in my series of becoming a financially savvy single woman. The series is a work in progress because I took a break for awhile…
I hope I’m not going out on a limb here when I say us single women all want to be financially independent, have money in the bank, an emergency fund, and investments.
I know I want all these things! And more. Namely I don’t want to worry about money during my retirement years.
And yet I worry about money all the time since I retired in June, 2023.
I have no income, no health benefits, and no employer retirement savings plan! Who can relate?
Without the safety net of employment income, can I meet my financial goals?
How much debt do I have?
Well this sucks. We can’t tackle a debt reduction plan unless we know how much debt we have.
Part of becoming a financially savvy woman is understanding everything about our money. We need to know how much is coming in every month. And we also need to know how much money is going out every month – thanks to rent/mortgage, utility bills, car insurance, gas, groceries, etc, etc.
As much as we want to, we can’t forget the ugly. That means we need to know how much money we owe. Money that we have to pay to others could be in the form of credit card, car loans, personal loans, and other places we borrowed money.
Hopefully not from a payday loan company! That’s a trap that’s hard to escape!
It’s time to rip off the band aid. Gather your credit card bills, loan documents, and any overdue bills and add them up.
Hopefully the final tally isn’t too high!
When I went through a grey divorce, my credit card debt was around $20,000 stretched across three credit cards, none of them maxed out. Fortunately I didn’t have any other types of loans. But with my puny income I could barely make the minimum payments.
The sad reality was I couldn’t really focus on my financial future as long as I was carrying debt.
But one day I was able to say I’m debt free!
Paying off debt
Now it’s time to figure out debt reduction.
You want to get rid of unnessary monthly bills. Usually credit card debt is the biggest evil monthly bill.
When you have your latest credit card statement in front of you, look at how much interest you owe. And of course you owe interest to the credit card company unless you’re able to pay your credit card bill in full every month.
Yikes!
You will also see somewhere on your credit card statement if you pay only the minimum amount due, how long it will take to pay off your credit card in full.
Is that date months or years from now?
What you need to do is pay more than the minimum amount every month.
This where the debt avalance or debt snowball system comes in.
Debt snowball or avalanche?
With the debt snowball, you organize your debts from the lowest amount due to the highest amount owing. You pay the monthly minimum due on all of them, except for the lowest amount, and try to put as much money toward that as possible until it’s paid off. Once it’s paid – whew what a victory! – you now concentrate on the second lowest amount, except you now add in the money that was used to pay down the lowest debt. You can continue along until all the debts are paid in full.
Even though he didn’t invent it, Dave Ramsey is a big cheerleader for the debt snowball, and popularized the concept. He has an article plus a free worksheet to stay organized and get rolling.
If you’re using the debt avalanche, you list your debts based on the interest due, from highest to lowest. And you still tackle it like the debt snowball. Once one debt is paid off, you use that monthly amount and add it to the next debt on the list, and keep going.
I used the debt snowball system myself, but the avalanche might work better for your circumstances.
Neither way is right or wrong. The object is to choose a method to pay off as much debt as you can.
I talk more about how I did the debt snowball, with my worksheet, on my post Taking Control of Debt on a Low Income.
Debt consolidation
Depending on how many credit card bills you have, when you looked at the interest rates, they were probably all between 20% and 30%.
Yikes, yikes YIKES!!!
Sickening. But there could be help out there for you depending on how decent your credit rating is. Meaning you have been paying your bills on time and aren’t over your limit on your credit cards. Or too close too maxing them out.
As impossible as that sounds….
Banks and credit unions can help you consolidate your debts. What that means is you make an appointment with a financial advisor or loans officer at your financial institution, bring in statements of all your debts, and ask for a loan to consolidate all your bill payments. That means if you’re lucky and approved for a loan, you will use that money to pay off all your financial obligations. Then you will have just one loan payment to the bank or credit union that you pay monthly or bi-monthly. At a lower interest rate than you were paying the credit card companies.
Credit counselling companies
If you can’t pay the minimum amount owing on your loans and credit cards, and are getting nowhere asking your creditor for lower payments or a deferral, a credit counsellor might be able to help. They can negotiate lower interest rates and monthly payments. If you miss a payment, that arrangement will probably be voided.
They can also negotiate debt settlement. That means they can make an agreement for you to pay your creditor a lump sum in a lower amount than the full amount due. You will need to make arrangements with a financial institution or the bank of mom and dad, or maybe even sell your car in order to have that lump sum ready to pay off. This will affect your credit rating when that creditor reports the settlement pay off.
Credit counsellors don’t work for free, so expect to pay a fee for their services.
If you live in Canada, you can receive free and confidential credit counselling services through the Credit Counselling Society. They have offices across the country. Even if you’re not in Canada, their resources may be useful.
In the states, try the NFCC, a nonprofit, free credit counselling service.
Alternately, do an Internet search with your location plus “free credit counselling”. Make sure you’re dealing with a free not fee service!
Filing for bankruptcy
Bankruptcy should be a last resort. If you were to liquidate all your assets and still unable to pay off all your debts, and no other solutions are viable, declaring bankruptcy might be your only option. This means your debts are higher than your assets and you’re unable to repay.
You will need to hire a trustee who performs insolvency services and that will cost you money, at least $1,000. Some bankruptcy trustees may be willing to accept a monthly repayment plan.
The trustee does all the work filing the paperwork and informing your creditors of the bankruptcy.
A bankruptcy stays on your credit report for 6 to 7 years, and should be considered a second chance to get yourself financially back on track.
There are some things that can not be written off under bankruptcy, like arrears on child and spouse support, but your trustee can explain that to you.
Other financial goals
Is it possible to save for other financial goals while in the debt reduction stage?
Some financial experts say yes. Others say focus on one financial goal at a time.
The answer might come from figuring out how much debt you have to repay and how much income you have coming in each month.
Or more importantly, how much of that income is left over after paying off debt.
Because, during debt reduction you’re trying to throw as much money as you can towards paying it off.
If you don’t have an emergency fund – and really, how many of us low-income single women who are struggling to pay our bills, have one of those? – then start putting a little money aside towards an emergency fund.
Once $1,000 is in the emergency fund, that will give you a little peace of mind. Then go back to paying off the debt as fast as possible.
There have been times in my life where I worked two or three jobs just to cover all my bills and I still didn’t have any leftover money. I’ve had a hard life and I know many of you out there also have lives where no matter how hard you work you still can’t get ahead.
Keep your eye on the prize. As long as you have debt, you will never be financially free,
Be consistent. Don’t give up!
Think of the reward. Financial freedom at becoming debt free!
Financially savvy women posts
#2 Single Women and Choosing Basic Financial Services
#4 Single Women and Busting Debt
#5 Single Women and Paying Bills
Published by Cheryl @ The Lifestyle Digs on April 6, 2024.
