Debt is pervasive in our society. Your mortgage, your car loan, and your student loans are things of lasting value. Once that debt is paid, you will still have an asset, something valuable that you will own outright. Destructive debts don’t build toward a brighter future, rather, they are the paper cuts of debt that culminate in considerable pain, such as multiple credit card balances, equity lines, or family IOUs. As a widow, you are more susceptible to debt. Paying off your destructive debts may be the most important investment you ever make for your future.
Grief Spending
The phrase “grief spending” is a real phenomenon, such as buying items to fill an inner void, or overspending at holidays because you are missing your husband. This is when you can get into trouble fast – trying to cope with your grief by financing it with debt.
Credit card debt is outrageously, unbelievably expensive. Credit card companies have hired the sharpest psychologists and marketing wizards to achieve just one goal: to persuade you into thinking debt is your friend when something goes wrong and you are struggling.
Reduced Income Can Compound Debt
It is common to have less income after your husband’s death. Adjusting to this reduction takes time and can lead to overspending. Making lower payments on old debt due to less income will compound the problem. Interest piles on, late fees accrue, and over-the-limit charges balloon. An average family carries a credit card balance in excess of two month’s income. The bank racks up big profits from your recent loss. Every monthly payment toward debt is a claim against your future.
The 50/30/20 Money Formula to Overcome Debt
Here is what you can do to find the money to address your debt. The 50/30/20 Money Formula: trim your Core Living Essentials (Must-Haves) to 50%, set aside 30% for Embrace Life’s Fun Again (Wants), and utilize 20% of your income for immediate debt reduction. This money formula will also give you the guidance to stay out of debt as you realign your finances for your future. More details about this process are available in our Keeping Your Home: How to Run Your Numbers blog.
You Can Overcome
Don’t let debt steal your future. It is difficult to heal if you are stricken with worry about surmounting debt and monthly bills. Wherever you are in the cycle of debt, you can take steps now that will make it stop. Being a widow, you have unique financial challenges. However, you can prevent grief spending through awareness. Take the time to realign your spending to match changes in your income after your husband’s passing. You can work out a plan that will help you sleep better, spend smarter, and renew your future.
When you pay off destructive debt – credit cards and IOUs – you open up new worlds of financial possibilities for yourself. You have more money to spend on what truly matters to you, more to save for your financial security, and a whole lot less to worry about.
Next week, we will discuss our three step approach to help you create a personal repayment program to do just that.
Any opinions are those of Laura L. Amendola and not necessarily those of RJFS or Raymond James.
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