Oran A. Hall, Contributor
QUESTION: I am a mother of three boys, married, but not getting much financially from my husband. I am working and am also seeking a second job, but without luck so far. I am in debt up to my nose and living from pay cheque to pay cheque. I know it makes no sense to borrow and not invest. My credit card has maxed out and I can't pay. My loans are backing up. Interest is going to kill me. The banks are calling me and my car insurance has been due from August.
Please give me your advice.
PFA: Debt can be dangerous, very dangerous. The borrower who is not alert may lapse into a false sense of security and then wake up in a deep quagmire. The resulting stress may lead to ill health.
Your situation requires serious, even painful, action, because it is serious. Accept that your standard of living will decline as you seek to correct your situation.
From this distance, I do not know how you got into this situation. Neither do I know how your husband fits into this picture.
You have not said you are separated or that he is not able to work or that he is underemployed. What would it take to get him to play a greater role in the financial affairs of the family? Do you both agree that this problem belongs to both of you?
It is clear that you cannot continue to live on debt. Incurring new debt is no longer an option, but it is clear that interest alone will cause your indebtedness to increase if you do not take radical steps to correct your situation.
Credit card debt, in particular, is destructive. It is expensive debt which may take a long time to eliminate even if you are making regular monthly payments. That is the debt that you should address with the greatest degree of urgency. Paying the minimum amount required will not do much to reduce the debt.
You are quite correct in your observation about what interest can do to debtors. This is why steps must be taken to reduce it. Otherwise, it is going to get higher as time passes, leaving you with less to meet your most basic expenses.
That being said, the earlier you take action, the better.
From what you have said, you do not seem to have any investments. Are you also saying that you have no savings? Are there assets you can sell to free up funds to reduce your debt? How does the car fit into your debt-reduction plans?
Given that you have said that your car insurance has been due since August, it is reasonable to assume that you are not using it now. Does it make sense to talk to your banker? Can more favourable terms be negotiated?
You will not know if you do not try and I doubt you will be the beneficiary of a debtforgiveness programme.
For your sake, I hope you succeed in finding additional employment, but you should recognise the challenges it could bring.
How would it affect the care of your children? How would it affect your health and your performance on your present job?
But let us look at what you have now. How can you make better use of what you earn? A larger share of it must go to debt servicing, so you will inevitably have less to spend on your regular living expenses. Which expenses can you reduce or even eliminate?
You will have to prepare yourself and your family to adjust to a different lifestyle. It will not be easy, but that is the reality. It is up to your family to determine how soon it comes out of austerity mode.
If you take serious action now, you should be able to hasten your return to a more normal life, but I must warn you that you should not even think of going back to the lifestyle that has put you in your present predicament unless you are able to increase your family income to a level that can support it.
The best tool to bring order to your financial life is a budget. Make the effort to make one and manage it carefully.
Time is not on your side. I wish you success.
Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of 'The Handbook of Personal Financial Planning', offers free counsel and advice on personal financial email@example.com