Family debt, also called household debt, is the collective or total sum of debt incurred by all adults in the home and monies owed to financial institutions. This debt includes a wide range of consumer loans or lines of credit that are subject to payment deadlines, interest rates, late fees, and other penalties.

When family debt obligations exceed net disposable income, many consumers reach for the easiest form of credit available: the credit card. If not properly managed, credit card debt has the potential to severely damage credit and lead to a life outrunning collections attempts, and worse. Begin managing your family debt-and learn to avoid its traps-by following a few simple, smart steps of credit-savvy consumers.

Managing Family Debt

  • Pay off debt from your income and savings. Be smart about how you manage this process. Look at the family or household’s total net income versus the bills. Budget accordingly. Budgeting helps your household to pay off all the necessary bills. Put mortgage or rent, utilities, food, medical, and credit cards at the top of the bill pay chain. Pay down your debt as fast as you possibly can without totally sacrificing savings.
  • Stop using credit cards or use them sparingly. It’s a wonderful feeling to have the ability to pay off your credit card bill every month. However, do not interpret this capability as your opportunity to spend feely. Your goal is to reduce the amount of debt you accumulate.
  • Learn smart money management and pass that knowledge along to the children and young adults within the household unit. If you open a credit card account and provide your children with access, keep tabs on their purchasing habits. After all, you will be considered a co-signer in the eyes of creditors and responsible for unpaid debt. Children old enough to swipe a credit card are old enough to understand basic economics and the negative implications of debt.
  • Cash has benefits. It’s easy to keep tabs of your spending when you discipline yourself to use cash. When you can see your hard-earned money leave the grip of your fingers every time you purchase with cash, you quickly learn to stop and think about every purchase decision.
  • Contact creditors as soon as a life event occurs. Unexpected events, such as job loss or medical issues, happen to people of all income levels. Many creditors are willing to work with consumers when a negative event happens, provided the consumer reaches out and asks for help first, before the debt begins to pile. You may benefit from deferred or temporarily lowered payments until your negative economic situation resolves.
  • Consider debt restructuring. Should your household finances reach a boiling point, consider speaking with a financial management expert for professional advice on restructuring steps that may benefit your unique situation.

The impact of not properly managing family or household debt is tremendous and has the potential for a ‘snowball’ effect, where debt grows exponentially with every late and missed payment. Taking a proactive approach to mitigate family debt now will help you and future generations become conscience consumers. Learn how Rescue One Financial can guide you in the right direction by giving us a call.