Saturday, July 27, 2019

When Does It Make Sense to Go into Debt as a Parent?

As a parent, it’s a good idea to run a tight ship when it comes to the money side of things. Because we’re parents ourselves, we feel the pain of our readers at times who struggle with their finances and occasionally send in emails asking for advice.

In this article, we wanted to talk about money and debt. Where does it make sense? When does it not? We also give some tips on how to learn to save even if you’ve not been great with money before. 

Is Debt Good or Bad as a Parent?
Like most things in life, the answer is – It depends!

There’s good debt and bad debt. If you’re looking to do something that adds value to your life or your home, then it’s likely that debt is a net positive if you are disciplined when taking out a loan and making the repayments on time. For instance, a loan from can be taken over multiple years, so that the repayments are manageable. This avoids borrowing too much or taking on too much of a burden. Frivolous spending along with borrowing to sustain it is where families often come unstuck. This is a slippery slope that’s best avoided!

Should Each Adult in the Family Use a Credit Card?

It’s tempting to make the argument that using a credit card is a great financial plan because it defers the payment for the items. This can leave a temporarily larger balance in the bank account which might earn a smidgen of interest if you’re lucky, and it also builds up Air Miles with some cards.

The Air Miles argument is a strong one for families that like to travel like ours does. Where the spanner in the works occurs is when credit card spending is not disciplined. When overspending on the plastic and not being able to clear the card balance in full at the appropriate time (making minimum payments doesn’t count), then it’s not going to end well for your family.

If you’re getting into trouble with credit cards, then cut them up so you are prevented from using them. Then make a disciplined plan to repay the balance in full. Debit cards are better, but again, if this causes overspending, then stick to electronic payments for bills and cash spending for everything else. Your expenses tend to fall by around 7% when you only spend cash and not plastic.

How to Save Money When It Seems So Difficult

There are two ways to save money in life:
1.      Cut back on living expenses.
2.      Earn more.
It’s always good to focus on both sides of the money coin. Why? Because you can only cut your expenses back so far by couponing, being frugal and nickel & diming your way through life. Then you hit a wall that you cannot climb anymore. 
Debt is not in and of itself a bad thing.
It depends what it’s for and whether the interest cost is worth its utility as a funding source. The trick is to keep a close eye on it to avoid debt becoming a problem for your family. Then you’ll be okay.

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