Understanding there is a problem is a first step.
Through education, planning, and execution, you and your child can come through this happier than where you are now.
What we recommend is a little more in-depth.
Start with education
Information is always a great thing. Recover from bad debt, whether your’s or your child’s, starts with becoming more informed. You shouldn’t only be learning about bad debt in general, but about your child’s money habits and even your own.
How did this debt get created? Who are the creditors of the bad debt (one or more)? How long has this debt been bad? Can the debt be corrected in a timely fashion? Or, will this be ongoing for some time to fix?
Answering these questions will let you and your children know what the next steps are. The answers may even reveal a deeper problem with your child’s money knowledge that should be fixed along the way.
Recover with a plan
Remember that it likely took some time to get into a negative state of credit. Because of this, it will take just as long, if not longer, to get out.
Planning is essential.
- Outline all of the debt
- Create a budget
- Develop goals to pay back the bad debt, while living within that budget
- Re-evaluate where the bad debts are at
There should be a calendar of payment dates, phone calls and auditing/budget sessions. This will not only help to keep your son or daughter on track to pay off all of the bad debt, but will give them more structure and a deeper knowledge when it comes to their money.
Think about which debts are requiring the most interest to pay back. There are many different methods to use to pay back debt. A common one is to pay off smaller debts first to free up cash flow so those payment can be applied to larger debt.
So for instance, if you have the following situation:
Credit Card 1: Balance 10,000 – Interest rate 19.99% and minimum payment of $300.
Credit Card 2: Balance of 1,000 – Interest rate of 10.99% and a minimum payment of $50.
If you had $750 to pay each month on your credit cards
Option 1: You could pay the additional $400 on Credit Card 1 to pay off the debt quicker. (Saves $94)
Option 2: You could pay the extra $400 on Credit Card 2 in order to pay it off sooner so that you could free up that cashflow to then apply that extra payment to Credit Card 1. (Saves $113)
Now, EXECUTE!
You and your son or daughter now have more information and a plan of attack for handling this bad debt. Now, you just have to execute on those plans.
You and your child both need to remember that you are not alone in this. Millions of U.S. citizens go through this same situation, every year, in this country.
The important thing is to not stop working towards resolving all bad debt. Don’t miss a payment, don’t slack on evaluating progress and don’t create more bad debt.
One more tip…
You might feel the desire to pay off the bad debt for your child. However, doing this, while much easier, will only teach your son or daughter one habit – mom and dad will ALWAYS bail me out.
Money sense means having the knowledge, but also the strength, to do only positive things when it comes to money. Proper savings, knowledgeable investing and using credit the right way are all lessons best learned, not simply done for you.