Debt as a single parent can be stressful and overwhelming, single-parent households are on the rise in Canada, accounting for over 1.84 million family units in the country in 2022. If you’re among them, you might feel like your financial obligations are too much to handle, especially if you’re saddled with debts, such as credit cards, payday loans, and lines of credit. With only one income to cover necessities like groceries, gas, childcare, and utilities, your expenses can add up quickly. Soon, you increasingly rely on debt to cover shortfalls. Your financial obligations gradually devour your budget, and you start falling behind on payments, leaving you at the mercy of irate creditors.
Reflecting on your future as a single parent can be scary when your income stays the same while debt piles up. However, with some creativity and rigorous planning, you can dramatically lower your debt burden. In this guide, we’ll show you what you can do to build a better financial future for you and your children.
Steps to take control of debt: the DIY approach
Getting a handle on your debts doesn’t need to be complicated or require the services of a costly financial advisor. Here are some tips you can implement on your own to improve your situation.
1. Get to know where you stand
If you’re drowning in debt, the first thing you need to do is assess where you stand financially. With a clear picture of how you’re currently doing, you can create a realistic plan to get your debts under control.
Tally up your debts, including your outstanding balances, payment due dates, and the amount of interest you pay. You’ll need these details to create a debt repayment plan that allows you to lower your obligations gradually over time.
Next, add up your income. In addition to your employment income, include government financial aid, spousal and child support payments, and income from side hustles and investments. In doing so, you can determine how much money you can apply toward debt obligations while still being able to pay for day-to-day expenses.
2. Prioritize your debts accordingly
Debts that carry a high-interest rate, such as credit cards and unsecured lines of credit, can weigh you down tremendously as a single parent. Paying them off can take an exceedingly long time. And by the time you do, your total interest cost may exceed the principal.
Therefore, if you owe a large balance on a loan with a high double-digit interest rate, focus on paying it off first before tackling your less expensive debts. Two tried and tested debt payment strategies you can employ are the snowball method and the debt avalanche method. Check out our article on DIY debt reduction tips to learn how they work.
However, suppose you have a mortgage or car loan. In that case, you’ll want to prioritize these debts over credit cards, personal loans, and lines of credit. The reason is that following behind on your mortgage and car loan can lead to your lenders repossessing your home and vehicle. The last thing you want is to struggle with travelling to work and finding a place to live when caring for your children.
While a credit card company can place a lien on your home, it’s much more difficult for them to do so than your mortgage holder, who has a direct claim on it. Furthermore, you can discharge credit card debt under a debt relief program like a consumer proposal (more on this later). You can’t do the same with a secured loan, such as a mortgage or car loan.
But what if your credit card issuer has already sent your account to a collection agency? In that case, you’re still better off focusing on your mortgage and car loan. Carefully weigh the costs and benefits of paying off past-due debts in collections. In some cases, it’s not in your best interest to pay a collection agency.
3. Ensure you always make the minimum payment
The minimum payment is the lowest payment you must make monthly to keep your account in good standing with your lender. In other words, by paying the minimum, lenders will report your payment as being on time, which means your credit score won’t take a hit. In addition, your account will remain open for you to use; non-payment could result in it getting shut down or forwarded to a collection agency.
Remember: defaulting on your debt due to missed payments will have a far more detrimental impact on your credit score than paying only the minimum, even if it’s only $10 (your payment history accounts for 30% of your score).
4. Create a budget
As a single parent, you can’t neglect budgeting. Implementing strict spending rules will ensure that you have enough money to:
- Pay critical debts, like your mortgage and car loan
- Make minimum payments on credit cards and lines of credit.
- Cover non-negotiable expenses, like groceries and utilities, without applying for high-interest debts, such as payday loans.
Start by entering your income and then enter your debts and expenses. Can you manage your debts effectively, or are they steadily increasing? If not, it’s time to get creative and brainstorm ways to reduce costs and optimize your cash flow management. Check out our guide on dealing with debt when living paycheque to paycheque for some tips.
Do your best to allocate some of your savings to an emergency fund. That way, you’ll have some cash on hand when you face an unexpected expense and won’t have to seek out a lender to bail you out.
5. Negotiate with your lenders and service providers
If you need help keeping up with payments, contact your creditors and see if you can negotiate revised terms better aligned with your monthly budget. It’s best to initiate a conversation before you experience too many issues – you’re more likely to get a concession if you have a positive payment history.
You can apply the same strategy with your cable, phone, and internet service providers – research their competitors for better deals and see if they’d be willing to match them. More often than not, they’ll accommodate your request since they’d rather avoid losing you as a customer.
It’s also worth reviewing your home and auto insurance. You may be overpaying for your coverage, or your policy may contain redundant coverage that you can eliminate to lower your premiums.
Ways to deal with your debt with outside help
Sometimes, the DIY route isn’t enough to keep your debts in check. In that case, seeking outside help is nothing to be ashamed of. Here are some options to explore.
1. Consider debt consolidation
Under a debt consolidation loan, you combine your existing high-interest debts under a new loan. As a result, you’ll have only a single payment each month.
A debt consolidation loan is advantageous if it charges a lower interest rate than what you currently pay on a credit card, line of credit, payday loan, etc. With a lower rate, you’ll pay off your balance sooner and lose fewer dollars to interest charges.
Debt consolidation loans are a type of installment loan. You’ll receive a lump sum from your lender to pay and repay the money through fixed payments over a set timeframe.
2. Enroll in a debt management plan
If you’re uncomfortable negotiating with your creditors about reducing your interest rates, you don’t have to do it alone. Consider approaching a credit counselling agency for help, a non-profit organization with certified and trained experts in money management.
Your credit counsellor may recommend a debt management plan (DMP), a program in which they work directly with your creditors to arrange a personalized payment plan more suitable for your financial circumstances.
Under a DMP, your credit counsellor will merge your debts, leaving you only one monthly payment commitment. While they don’t have the power to eliminate your debts, they may successfully lower your interest rate and eliminate late fees and other penalties. Once enrolled, you’ll forward your monthly payment to the credit counselling agency, who, in turn, will disperse it to your creditors.
3. Tap into government and nonprofit financial assistance programs
There’s a wide range of financial assistance programs in Canada, both at the federal and provincial levels. Some are geared specifically toward single parents. You can use the extra funds to cover living expenses and apply toward your debts. Be sure to take advantage of services that local charitable and nonprofit organizations offer, as well.
- Canada Child Benefit. A non-taxable monthly payment for eligible households with children under 18 years of age. Each province and territory has related benefits you may qualify for.
- Canada Dental Benefit. An interim benefit for eligible families who pay for dental expenses for a child under 12 years of age who don’t have access to a private dental insurance plan.
- HST/GST Tax Credit. A tax-free quarterly payment for low-income families to offset the cost of sales taxes.
- Canada Learning Bond. A grant that pays up to $2,000 for eligible households to start a Registered Education Savings Plan (RESP) for the children.
- Family Supplement to Employment Insurance (EI). An additional EI payment for low-income families for receive the Canada Child Benefit.
- Climate Action Incentive Payment. A single parent can receive an additional 50% on top of the regular individual amount.
- Affordable childcare programs. The Employment and Social Development of Canada (ESDC) works with provinces and territories to make childcare more accessible and flexible under the $10-a-day childcare initiative.
- Food banks. Local food banks are an excellent source of groceries, personal hygiene products, and more for single-parent households facing financial difficulties. Visit Food Banks Canada to find a food bank in your area.
- Legal aid services. If you’re facing hurdles getting the spousal or child support payments you’re entitled to, contact legal aid services in your province or territory.
- Salvation Army. The Salvation Army runs a program called the Housing Stability Bank, which provides financial assistance to cover utilities and rent to low-income families in London, Ontario.
- Moms Canada. This organization offers a range of financial support and resources for single mothers in Canada.
- One Parent. This organization provides various resources and financial aid programs for single parents in Ontario.
4. File a consumer proposal
If you’ve tried all of the above options and still are overwhelmed by debt, you might want to apply for a consumer proposal. A consumer proposal is a federal debt repayment program that allows you to settle unsecured debts with your creditors. Essentially, you offer to repay a portion of your outstanding balances over five years. Depending on your circumstances, you could discharge up to 80% of your debts. In addition, no interest will accrue on your balance, and you’ll receive legal protection from creditors.
To pursue a consumer proposal, you must contact a Licensed Insolvency Trustee, the only debt professional in Canada who can administer it on your behalf.
5. File for bankruptcy
Suppose you don’t qualify for a consumer proposal, or it doesn’t provide the debt relief you need to get financially back on track. In that case, an alternative solution is to file for bankruptcy.
Personal bankruptcy is the option of last resort. We don’t recommend it for everyone, given the negative consequences, such as surrendering certain assets to creditors. Still, this debt relief program will eliminate 100% of your unsecured debts, giving you the freedom to start with a clean slate. Like a consumer proposal, bankruptcy is a legal proceeding only a Licensed Insolvency Trustee can carry out.
The bottom line on dealing with debt as a single parent
Given the rising cost of living in Canada, we sympathize with the financial struggles that you may face as a single parent. We also understand that to get by and provide for your children, taking on a sizable sum of debt is sometimes necessary, despite the consequences.
However, by following the strategies in this article, you can gradually lessen your dependence on debt and steadily progress toward reducing your obligations to a manageable level. One thing to remember is never to be ashamed of your circumstances and never feel guilty about asking for help. Combining DIY debt management tactics with assistance from financial professionals can go a long way in escaping crushing debts.
At David Sklar & Associates, we’ve been helping people from all walks of life fix their debt problems, including single parents. If you need some guidance on the best way to tackle them, contact us for a free consultation. You owe it to yourself!
Photo by Elina Fairytale