Conversations with anyone about financial issues can be awkward - let alone with your parents! Unfortunately, with the current U.K household debt standing at a record £15,400 these conversations are becoming more and more ordinary. Whether you still live at home or not, it’s important to approach them with caution and sensitivity, because after all, personal finance is personal. Here are three quick tips for helping your parents through their financial troubles:
“Debt” is a term that can be quite vague as it encompasses anything from owing your mate a tenner from the taxi home last night to things such as loan repayments. When it comes to loans in particular, it’s important to consider the two distinct categories of debt: secured and unsecured.
Secured debt is a loan typically involving an asset of some kind (e.g. car, house or even a fridge!) which is pledged as a collateral. This means that if the loan is not paid then the creditor can repossess the asset as a means to regain some of the amount owed.
Unsecured debt is the exact opposite. The best example are things not protected by a guarantor or an asset such as credit card debt, student loans and payday cash loans. Due to the fact that these can’t be physically repossessed, the creditor often will have higher interest rates as an incentive for the borrower to repay faster.
An awareness of the type of debt your parents have may seem pointless as debt is debt, right? However, it may be vital in your approach to helping your parents in this situation especially with regards to details such as interest, repossession and payment dates.
The most important thing to remember is that you are not legally accountable for your parent’s debt. Unless you co-signed the loan with them, you’re in the clear! It’s crucial to remember this as it’s easy to feel guilty and responsible for their financial shortcomings, but you don’t want to put your own finances at risk as well!
The best way to effectively get out of debt is to try and accumulate as much funds for repayment as you can and then begin to repay.
Here are three ways you can help your parents get some money together without having to compromise your own finances…
It’s so obvious but a strong budget plan is central to anyone needing to get out of debt. Budgeting is a lot easier than your parents might think; small changes such as buying essential household items such as toilet paper from Poundland instead of the supermarket can really add up.
This is just the beginning too! According to the ONS in 2017 the average household spent £79.70 a week on just transport alone! Why not suggest your parents use alternative means of transport? Most U.K cities offer a subsidised public transport pass for older citizens and if they’re still working, their employer might even offer the Cycle to Work Scheme where loan bikes and discounts are offered for those who commute to work via bike. Small lifestyle changes like this can really add up; simply by changing your mode of transport could potentially save your parents up to £300 a month.
2. Check the Cheques!
It’s pretty common these days for parents to be confused by the ever-changing technological world that now surrounds us all. Netflix, Amazon, Mobile phone and gym subscriptions are deceptively simple; just enter your details and pay a small fee per month and it’s all done. However, it’s the older generations who can easily fall a victim to these plans and overpay for a subscription they don’t need or use at all! It’s definitely worth sitting down with your parents and check how much they’re paying a month for their mobile phone plans. According to the BBC, Citizens Advice found that customers who do not take out a new contract are paying an average extra of £22 a month! It’s more than likely that your parents may have even been pulled into to a ‘free 3 month trial’ which starts charging them monthly after the trials over.
3. No Shame to Reclaim
There’s a strong chance that your parents could be due some money. Whether they’ve been paying too much council tax or been missold payment protection insurance on a previous loan, it’s worth trying to reclaim. A quick visit to GOV can reveal the many ways your parents could potentially be due a rebate. Even if one of your parents wears a uniform to work they could be entitled to a uniform tax rebate. There’s no shame in just asking and they could be due up to thousands of pounds in this.
After prioritising your parents spending and saving as much money as possible the goal now is to pay, pay and pay! Try and encourage them to pay as much as they possibly can using their savings and the money they’ve acquired following the steps listed earlier as interest rates on debt can cause it to amass to an even more daunting sum.
Here are a few nifty ways to get rid of that pesky remaining balance with the lowest possible interest rate:
- Lose the Interest
Credit Cards? Loans for debt? It does sound completely backwards and counter-intuitive but the right use of credit cards and loans could actually mean your parents lose their debt quicker without paying ridiculously high interest rates. Take a look at their current credit card plan and ask them to consider balance transfer borrowing. Even with a bad credit rating it’s possible to shift the balance of existing card debt to another card with no fees and even 0% interest in some circumstances! Most balance transfer cards offer 0% interest for up to 30 months provided the monthly repayment minimum is met and the debt is cleared within the 0% window.
As mentioned before, a mortgage is a secured loan which typically means there’s a cheaper repayment rate over the long term. Take a look at what your parents current mortgage is and the chances if they took out the mortgage a while ago then they’re probably paying too much. A cheaper mortgage could give them the money needed to clear their debts entirely. It’s also worth considering that it’s possible to move credit card and loan debts on to the mortgage if it’s a cheaper repayment. This is something to definitely spend some time considering. Make sure your parents are absolutely certain this is a viable alternative and they will be able to repay the debt in full. The danger here is it sounds so simple! But you should bear in mind that in shifting unsecured credit card or loan debt to a secured debt increases the possibility of your parents’ home being repossessed if they can’t make the payment.
- Debt Consolidation Loans
If your parents have debt coming from multiple sources, a very practical way of decreasing the amount of debt they owe is by taking out debt consolidation loans. This type of loan is a way of downsizing your debt by taking your multiple debts and merging it into one more affordable and manageable sum. It will not only will make your parents lives easier, but it is also more affordable as you can negotiate new loan terms. You can set smaller instalments, and pay reduced interest.
Debt is not an easy one, that’s for sure. But it is important to always bear in mind that there is an abundance of practical ways to help your parents around debt and it’s often that it sounds worse than it actually is!