Single parenting is a tough path which brings you through such bends of financial stress, that you may meet crashes and accidents in the field of finance management brutally. But this should not stop you from living with new hopes. And that’s why it's a good idea to have some knowledge of financial management, debt management, savings, and investments so that parenting and life both get enjoyable instead of seeming a burden.
The challenges faced by single parents
Whether you are a single mother or a single father, life can be hard for you as soon as you realize that you are the sole earner for the family. The responsibility of the child’s education, daily needs, extra-curricular growth, proper nutrition, and medical care, all bestows on you. To see to it that responsibilities stay enjoyable while you achieve small milestones in raising the child, you must have proper planning for the smallest of expenses you may do. Every bit of money coming into your hands must be sensibly spent.
How you may get into debt
The main challenges as the single parent are to plan it right and follow effectively. Sudden expenses in the form of extra fees, medical emergencies, and other matters come spring up. And if you have no funds allocated for handling the emergencies, then you are pushed a step ahead towards lending to fill the vacuum.
To make up for the deficit in money, you may feel inclined to make some payments via punching your credit card. If you don't have a credit card, or if you have little credit limit to suffice the expenditure then you may turn towards taking a quick loan. Often under such circumstances, you may be tempted to get a payday loan which gets processed really quick.
The debt piles up quicker than you believe
Seldom does a single parent realize while availing a payday loan that the ultra quick processing would be taking a toll on your earnings and savings through the very high interests that will be charged on loan EMIs? Even credit card dues also may pile up gradually to be so high that even the minimum amount payable per month may get out of your budget.
The credit score does get a setback
You may notice the problem associated with this financial imbalance a little later, when you may face a rejection about some insurance or loan renewal etc. due to your credit score. The credit score of an individual gets lowered when the person repeatedly misses payments, pays late, and becomes a defaulter. Such things get noted in the credit history of the person. And then the credit score gets lowered.
A healthy credit score is anything above 700. Hence any lowering of the score to levels of 650 or lower can be alarming. This indicates that you are not a dependable lender who would pay back a loan on time. And the consequences of a reduced credit rating can be serious. Your future financial planning may get affected. If you plan to buy a house or car later, you may face either multiple rejections for the mortgage or may have to pay high rates of interest for this unwillingly.
Your savings and the monthly budget get affected
Savings and the monthly budget get affected due to the pressure of loan EMIs on you. When you take a loan the very next month, you have to pay the installment for it. As you realize, that squeezing out the EMI is pressurizing you so much, that you cannot save on that month, or have to sacrifice a few needs like cutting down on grocery bills, etc., then this pressure starts lingering on. The pressure moves on to the next month, and the next, and goes on. And under the burden, you fail to save, fail to invest in money growing schemes, fail to make and maintain emergency funds, and altogether feel more and more stressed. The vicious cycle ultimately makes you a late payer, and finally a nonpayer at a certain time. Informative and helpful sources like nationaldebtreliefprograms.com explain these very well.
How to tackle debt by debt consolidation
Debt consolidation is an excellent way to save you out of stressful situations when you are indebted and cannot manage things. Debt consolidation will not eliminate the debt you have. But it will make payments towards it easier for you. This happens when the rate of interest you have been paying gets lowered, and the loan payback tenure gets elongated. Both directly lower the amount of money you pay every month in EMI. And that is how things get easier for you. You may then do substantial savings and emergency fund building while paying the loan EMIs.
To get your debt consolidated, you must find out how much you need to pay towards your existing high-interest loans with full pre-closure penalties and old accumulated penalties. This amount you must try to draw from a fresh debt consolidation loan at a low interest rate, and longer tenure. And when you succeed in doing this, you can pay off the existing problematic loans and close those accounts forever, and concentrate on paying the new loan every month with ease.
Settling the debt
Debt settlement is another method to fight debt and manage things. But it’s different from debt consolidation. If you are in heavy debt, and you realize that you can arrange some funds to pay one time and get out of the debt, but not as much as you owe, then you may attempt for a settlement with your creditor.
You will have to talk to the creditor and tell your offer of paying a smaller amount as a onetime full and final settlement payment to close the loan forever. Generally, such negotiations are not that easy, because you have to make the creditor understand your helpless and tight situation. Hence, better you hire a speaker to speak on your behalf with better convincing capabilities.
Debt settlement services are there to handle such cases. In this case, you actually stop paying any EMIs to the creditor until settlement happens, even though you know that non-payments will accrue more penalties and lower your credit rating further. However this is a step taken to build pressure on the creditor, and often after some waiting, this gives positive results.
Controlling your finances, spending, and the monthly budget is much easier than settling debts or consolidate loans. Hence, your primary attempt must be to stay off from debts and save as much as you can.