From next week Tuesday (4th May 2021) in the UK there will be a new initiative called the Debt Respite Scheme (Breathing space) which aims to support those in problem debt with the right to legal protection from creditor action for up to 60 days (more time is allowed if someone is in the middle of a mental health crisis) (1). This will come as much-needed help because in the UK, the average total of unsecured debt per adult is £3,724 (2), crikey!! Consumer debt is a baggage many people carry with them, and according to The Debt Advisor, more than a third of single mothers are in debt due to a lack of support from their former partners, and whooping 39% of single mothers have to take out loans or rely on credit cards to supplement their lack of income (3).
Debt can be very painful, as it is often associated with socio-economic hardship and maternal depression (4,5,6). And yes whilst different systems of gender inequalities in society can point to why mothers are at high risk of financial hardship than fathers (7, 8)… the bottom line is, no one is going to come and save you out of such mess. So in today’s post, I will be sharing 5 steps on ways to tackle this unpleasant anchor.
First things first. Create an honest spreadsheet of all of your income and expenditures. If you have to, use your bank statements to make sure you capture everything. Then also make a list of all the creditors you owe money to, the balance on each debt and the interest rates as well. The aim of this exercise is to get a clear picture of your circumstances and to also start tracking where every penny goes.
2) Prioritise and cutbacks
Once you know what you are dealing with, prioritise the need for any essentials such as tax and accommodation, then review everything else and see if you can get the same or a similar result but at a cheaper price. For instance:
Internet providers usually offer you a deal when you mention that you have found a cheaper supplier and are considering leaving, if they refuse to lower your plan, switch to a cheaper service provider.
Instead of paying for a gym membership, you can always follow a home workout or go running outdoors.
Consider purchasing second-hand items, especially if it’s a product that you are not going to use regularly. Instead of upgrading your phone, consider a sim-only contract instead.
Consider bulk buying your food shipping at warehouses or markets (then freezing anything perishable) instead of making regular shops to the shops.
Speak to your lenders and explain your situation to see if you can negotiate a lower interest rate.
Consider temporarily canceling any nice-to-haves such as subscriptions and take-away as money you really need for other priorities
All of this shopping around may feel exhausting at first, but you will notice the extra cash in your bank account and thank yourself.
3) Ways to raise extra cash
Raising extra cash will help you to get ahead of your debts, as the faster you can get out it the better. Consider the following:
Second-hand vintage shops – Sites such eBay, Depop, Facebook market, are excellent breeding grounds for selling any of your pre loved or even unused items. Once your child outgrows something, wack it on eBay and at least get some money back from it, if there is something that you haven’t worn or used in over a year, consider putting it up for sale.
Pick up a new skill – There are a lot of skills you can easily learn from Youtube and start, I have also mentioned several work-from-home jobs in a previous post. But as an example, if you don’t know how to braid hair, get a cheap mannequin head or grab your daughter’s doll and practice on it until you have perfected braiding/cornrowing/styling, then you can start a side hustle from your own home. Other things you could do at your own convenience include dog walking, babysitting, baking cakes etc these days almost every task can be outsourced and there is always someone willing to pay for it.
4) Avalanche or Snowball method
Once you have earned yourself some extra income, you’ll then have to decide in which order you’d like to begin tackling your debts. Either by highest interest first or lowest balance first. The first is called the avalanche method, and with this idea, you continue to make minimum payments on all debts, but then use any extra funds to pay off the debt with the highest interest rate until it’s all cleared. The key benefit to this method is that you can potentially minimise the amount of interest you pay overall, because of how quickly you rid yourself of the most expensive debt. The second approach is called the snowball method, and again you’ll continue to make minimum payments on all your debts, but any extra funds then get put towards the account with the smallest balance, which is meant to give you the psychological and emotional thrill of paying off accounts quickly. Whichever method you use, once you have cleared one of your debts, you’ll then use any money freed up to contribute to your next creditor.
Personal control will be your most valuable skill when working to get yourself out of debt. There must be no people pleasing with fancy gifts, no giving in to your children’s nagging, no “taking breaks” from your strategy, no giving into pressure from salesmen, no trying to keep up with the Joneses, otherwise you will just find yourself right back where you started. Once you begin the process of taking control of your debts, the momentum and fulfilment of moving forward with your troubles begin to inspire you to keep going until you reach the finishing line.
However if you find that you cannot cover the costs for your essentials, it is a good idea to speak with a debt advisor who can help with access to services such as the Debt Respite Scheme mentioned. Reaching out for help and not suffering in silence is also a skill that will also help you when dealing with your debts.
It is really important to get out of debt as soon as you can, because whilst you are in debt, any money you earn isn’t really yours to work with. And whilst yes you may be getting by from paying the minimum amounts required, the interest on the balance adds up so you end up paying more, and find yourself staying longer in debt. The more time you spend in debt means the less time you have to build a decent savings pot for your retirement or any serious life event (starting a business, university fees, helping you children get on the property ladder etc). A study by the University of Manchester found that older women were more likely to have financial problems than older men, particularly those women who were living on low incomes and who were separated or divorced (9). The research also highlighted that many of the women in the study had kept their financial problems hidden due to fear and shame whilst bringing up their children, which is a day-to-day occurrence I fear many women are currently experiencing.
In addition to the steps outlined above, try your best to stay away from debt solutions such as IVAs, bankruptcy, or debt relief orders, as they can still affect your ability to access necessary credit (for instance some landlords will not accept applicants with recent IVAs etc) and these can still put a dent in your credit history. Help such as the Debt Respite Scheme should be used as a tool to help you get out of debt as opposed to playing a system, because that’s only going to hurt you in the long run.
And what-ever you do, do not ignore your debts, these days you can join Facebook groups where everyone is in the same boat, and can provide moral support, tips, a heads up. And a lot of times you don’t even have to deal with your creditors face-to-face.