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Updated on Wednesday, March 4, 2015
Does it hurt to watch your parents make one bad financial decision after another? Do you often find yourself wishing that you could do something to open their eyes to the situation they’re in?
If so, you’re not alone. I’ve been there several times. My parents have been struggling with consumer debt my entire life.
While I’m grateful that I was able to learn from the mistakes they made early on, that doesn’t mean I want to stand by and watch them repeat those mistakes!
After a few years of talking with them about financial matters, they’ve finally asked me to help them get their finances in order so that they can pay off their debt once and for all.
I want to tell the story of how it happened, because I’m happy to help my parents dig themselves out of the hole they’ve been in for years, and I know there are others out there who would like to do the same.
While these methods might not work for everyone (personal finance is personal), I think many can benefit from the same steps.
If you want to give your parents a hand when it comes to dealing with debt, here are 5 steps you can take.
First, a Word of Warning
While you may want to help your parents (or even friends and loved ones) with their financial situation, you might have to accept that it’s not possible.
Why? You can only help those that are ready and willing to be helped.
I’ve learned this the hard way as the years have gone on and I’ve become more enthusiastic about personal finance. It’s the old saying – you can lead a horse to water, but you can’t make it drink.
I don’t agree that money should be taboo, but you can’t force someone to budget, to track their spending, or to consider the ramifications their purchases will have months down the road.
Your eyes may be open to what’s going on, but your parents may be burying their heads in the sand because they can’t face the reality of the situation.
Those who have already had their “aha!” moment when it comes to their finances are typically more willing to accept help.
I know it might hurt to step away and keep your mouth closed, but you have to pick your battles. Some aren’t worth trying to fight, especially when the other side isn’t aware there’s a problem.
Step 1: Lead by Example
That’s why my first suggestion is to simply lead by example. I love talking about personal finance, but sometimes talking isn’t effective.
I’ve been tracking my spending for years, and I created a budget when I first moved out on my own. I’ve always been open with my parents about my finances, and I spoke with them regarding any financial decisions I made, as well as asked for their input.
As a result, they’ve always known me to be on top of my finances. They saw first-hand how powerful tracking spending was because I did it.
I admit, I nudged them along a few times, mentioning that since budgeting had been working out well for me, they might want to try it.
Eventually, it worked – my parents got so sick of their debt, they wanted to take action, and the first person they turned to was me.
While my parents did pay extra toward their debt when they could, they didn’t do it in a consistent or effective way, so the first step was getting their statements together to create a debt payoff plan.
Step 2: Gather Financial Information Necessary to Create a Plan
My parents have about 5 creditors they owe, so this step was crucial in being able to create a debt payoff plan. If you or your parents don’t know the particulars of their debt, then you can’t help them.
I recommend getting all their recent statements together and listing all the debt they have. I’m a huge fan of spreadsheets, so I took their information and listed it out accordingly:
Creditor, Balance Owed, Minimum Payment, Interest Rate, Due Date
By doing this, you can easily sort debts by any category you choose, which can be helpful when deciding how to prioritize them.
Also, while going through these statements, my mom noticed she had rewards points on one of their cards. She was able to redeem the points as a statement credit, and knocked out $400 of that particular debt!
It goes to show you it’s worth going through statements to make sure you’re not missing anything like that. My mom was excited they started their “real” debt payoff journey with a bang, and as most of us know, emotions are a huge factor when paying down debt.
However, having all of this information in front of you can be overwhelming, and people don’t always know what to do afterward. Help your parents prioritize their debt and create a plan by telling them what choices they have, without being judgmental.
I explained that the avalanche method (paying off debt according to highest interest) is the mathematical approach which will save them more, but I also understood my parents had been carrying their debt around for years. If going with the snowball method (paying the smallest debts off first and using the psychological momentum to drive you forward) helped them, I was all for it.
In the end, we decided on a mix, but the important thing was they had a list of their debt that they could easily reference and update at any time. Their total wasn’t a mystery anymore, and I think that was empowering.
Additional steps to take during this stage: if the interest rates on your parents’ debt is unbearable, have them call their creditors to see if they can work with them. If they’ve paid on time and have been customers for a while, their creditors may be willing to help.
You can also look into 0% balance transfer offers for them – just make sure they’ll be able to pay back their debt in full before the 0% rate period expires or teach them how to roll it over to another offer.
Step 3: Get Spending Under Control
If your parents are in consumer debt like mine are, they might have some spending problems that need to be addressed.
This can be a sensitive topic to discuss, but if your parents are aware that their debt is an issue, then hopefully they realize some changes are in order when it comes to how they use credit.
I’m thankful my parents realized long ago they couldn’t continue to use credit like they had. They cut up most of their cards, kept a few in case of emergencies and online purchases, and that was it. They were already fairly dedicated to lessening their expenses and getting their spending under control.
However, when I asked my mom how much they were spending on certain things (she primarily handles the finances), she couldn’t give me any numbers. Mental accounting doesn’t work for most people, so I challenged her to track their spending in hopes that it would give them a little reality check.
I set them up with a simple spreadsheet similar to the one I use to budget and track spending (but if your parents are good with technology, try using Mint!). Since they use cash 99% of the time, I told my mom to keep all of their receipts and to record transactions the day they happened so she wouldn’t get behind.
The basic premise for the budget I use looks like this:
Category, Actual Spending, Budgeted Spending, Leftover
I’m happy to report it’s been a few months since they started, and my mom has diligently updated the spreadsheet. She’s very happy she started tracking their spending!
Just a few days ago she commented that she was close to being over-budget on food. Before having a budget, that thought wouldn’t have entered her mind, but because she was updating it, she was conscious of what they had spent.
Additionally, my parents live on a fixed-income as they’re retired (aside from the fact my mom has a part-time retail job). Sticking to a budget ensures they’re not spending more than what they have coming in, which is crucial.
Step 4: Putting It All Together
Okay, now that your parents have created a plan to tackle their debt, and hopefully have their spending under control (or are aware of any issues), you need to put all of these steps together.
I understand that not everyone is going to be able to do this, but I told my parents whenever they have money leftover at the end of the month, they need to put it toward the debt they’re focusing on. This also motivates them to spend less, because they want there to be a positive number in the “leftover” box.
If your parents are open to it, go through their spending line-by-line to see if there are any leaks that can be plugged. Just try to do it in the nicest way possible, and don’t cast judgment.
One method that may work better than simply telling them to cut spending is showing them exactly what their habits are costing them. If your parents are spending $133 a month on their cellphone bill, that adds up to almost $1,600 a year! That’s a decent chunk of change that could be going toward debt.
You can also suggest they try giving things up temporarily, such as dining out, going to the movies, or any other costly activities they partake in on a regular basis.
Lastly, help them figure out what their values are so they can start spending on things that really matter and cut the excess out.
Step 5: Saving and Earning More
Depending on your parents’ situation, it’s worth mentioning the possibility of earning more. My mom likes to keep busy, so she took a job in retirement for that purpose.
However, the added bonus is that her entire paycheck can go straight to their debt, because they’re already living within their means, and their regular living expenses are covered by their fixed income.
The last thing most people want to do in retirement is work, but that’s the reality a surprising amount of baby boomers are facing these days.
If your parents aren’t thrilled at the idea of working retail, see if they can make money from hobbies or their past professions.
My parents live in a 55+ community and know a handful of people that make money on the side from things like woodworking, haircutting, knitting, and teaching classes.
Lastly, I do need to mention the importance of having savings, especially if your parents are close to or in retirement.
The primary reason my parents still have debt today is because they lacked the savings to cover expensive home repairs in the past. Any time something went wrong, they would charge it, and so the cycle continued.
They were finally able to create a savings cushion by selling their house and moving to a lower-cost-of-living area. I know that’s a bit extreme, but the area they wanted to retire to happened to be much cheaper – so much so, they were able to buy a house outright and still have money left in the bank from the sale of their old home.
If your parents are still stuck living paycheck-to-paycheck, though, then make sure you emphasize the importance of saving. Having an emergency fund will give them peace of mind, which is worth it, especially if they’re living on a fixed income.
It Isn’t Simple, But It’s Worth It
Helping your parents get out of debt isn’t easy, especially if they’re not willing to hear you out. Be patient, understanding, and lead by example. Don’t try to force your financial beliefs on others – they’ll come around when they want to.
Once they do, then you can start helping them get on the right track by setting them up with a spending plan and a debt payoff plan that works for them. They’ll be thanking you soon enough, and you’ll feel better knowing their financial situation is improving.
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