Daily Archives: March 7, 2012

Money and the Single Mom – Debt


Being a Single Mom is stressful enough with kids calling your name day and night, making demands on your time and attention, while juggling work, chores, bills, and laundry.  Being a Single Mom in debt is like have more kids, making demands on your hard earned money.  Maybe, even, interfering with your ability to make the bills or spend time with your kids because you have to work so many hours just to stay afloat.

In my last Money and the Single Mom – The Budget post, I mentioned that debt was like having extra weight.  It bloats your budget, slows down your savings and creates an underlying sense of unworthiness.

Is a debt-free life a reality for a Single Mom? Yes.

Debt Freedom Feels Like This

My Story

During the demise of my marriage, we split our debt as equitably as possible and each of us took responsibility for our portion.  We had furniture payments, credit card payments, and a defaulted student loan that, in hindsight, I should have never co-signed.  The remnants of a life that was no longer.  It was scary to be responsible for even half of this debt we had accumulated and have only a single income.  An unreliable single-income, since my job was on a contractual basis.

In my effort to remove this scary debt as quickly as possible, I made some poor financial decisions for a quick solution.  I was debt-free for about 6 months before I started accumulating again.  It was only when I started practicing the principles below, I was able to systematically eliminate all my debt and be truly debt free!  It was difficult to change my ways but the road to glory is never easy.  But it is definitely worth it.

There are two reasons we get into debt

Emergencies: What usually gets us into debt is the “Emergency” that forces us to turn to our credit cards to rescue us.  A flat tire, a car repair, an emergency room visit, a broken wash machine….. all at the same time!  Now imagine if you had $1000 or even a $500 sitting in a savings account just for those type of emergencies.   Wouldn’t that take care of most emergencies and give you more peace of mind than a credit card?  Imagine a life where you pay for emergencies as they happen and not get a bill for it later

Self-Rewarding: The “I need it now” or “I deserve it because I work hard” mentality causes us to live beyond our means.  It’s reaching for the credit card to purchase those new shoes because you’ve had a bad day and feeling pretty will cheer you up.  Or, like I did, take the kids on a Disney vacation because I’m more fun than their dad and we deserve it because I am a Single Mom. (I can’t tell you how many times I’ve thrown the Single Mom card to justify what I want).   In reality, other than the food, shelter, clothing and utilities, you don’t really need much.  An neither do the kids.

Steps for Getting Out of Debt

1.  Build a Fund for Emergencies.  Depending on your income, this can be somewhere between $500 to $1000 to start.  Stop paying extra on your debts until you have this in the bank.  Sell off stuff you don’t need, turn off the cable, stop the extra driving around and start socking away the money and put it in a savings account that does not give you super easy access.  I use http://www.SmartyPig.com, an online savings bank, but there are many other accounts that you can tie to your bank account so you can move the money to and from your checking account without having “at the moment” access.

2.  Cancel your Credit Cards.  Quit carrying them around.  Cut them up.  You don’t need them.  You have an emergency fund.  And, no….. new shoes is not an emergency.   Too tired to cook is not an emergency.  A spa weekend for an overworked Single Mom is not an emergency.  Get out of the “I deserve it” mentality.

3.  Live by your Budget.  I cannot emphasis enough how important creating AND using the budget will be for a Single Mom’s peace of mind. As you build your first budget, it will take time to make one that truly works from month to month.  Keep learning from your budget and tweaking it each month.  It has to make sense for your life in order for it to work for you.  The budget will help you SET and KEEP your priorities straight.  It’s a wonderful tool I talk about here.

4. Develop a plan for paying off your debt.  List your debt from smallest to largest, ignoring any interest rate, and start paying extra on the smallest until it is gone.  Then combine that amount with your current payment on the next largest and when that is paid off, apply that payment to the payment for the next largest.  Continue to do this until all your debt is gone. For most people, with average debt, this could take up to 18 months or more.  Be patient.  I can assure you that it is worth it.

Like weight loss, debt did not accumulate overnight and it won’t disappear overnight.  To live a debt-free life, it requires a change in your mind-set, your behavior and it requires a plan (Budget and Payoff Plan) that you work every week.

Things NOT To Do To Get Out of Debt

  • Do not take out an equity loan or a consolidation loan to pay off your debt.  It sounds like a good idea, but you are just trading debt for debt.  Chances are you will be increasing the interest rate on the lower rate cards and in the end pay more interest each month and less principle.  Also, an equity loan puts your home in jeopardy should the unthinkable happen.
  • Do not cash in your 401(k) or IRA to pay off debt quickly.  This puts your retirement into jeopardy.  You are trading in a longer term cash value for an instant solution.  The longer money sits in these accounts, the more money it makes.  By removing this money from these accounts, that money is no longer working for you.  We will talk more about this phenomenon in future posts.

While these solutions provide instant gratification, there is no lesson learned.  I say this from experience, because I took money from my IRA to pay off my debt and within 6 months to a year, I was almost right back where I had started. And my Retirement account is much poorer for it.

This second time attacking my debt, I had to work hard to stick to my budget.  I sold things, like my motorcycle, reduced services like cellphone and cable and changed my habits.  The hardest thing was giving up my American Express Gold Card, because I kind of liked impressing people with my Gold Card status.  It was difficult to admit to myself that I was this shallow.

The rewards of being debt-free far outweigh the momentary gratification from having something new.  Once you are debt-free, then you can begin the next important step…. Saving …… Big Time!

Next Wednesday:  Money and The Single Mom – Savings