Debt Solutions To Break Out Of The Debt Cycle

by Jacques Sprenger on 2012-06-1924

Many of us wish to become debt free. So what are some ways to break out of the debt cycle? If you know someone in debt, here are some ways to help them escape the rut.

Let’s look at an interesting situation. So you may think that your kids are finally independent; they’ve graduated from college, found work, got some credit cards and maybe got married. Could it be time for you and your spouse to enjoy life without offspring concerns? It should finally be time to plan that Alaskan cruise you always wanted; time to take a trip to the Vatican and admire 2,000 years of accumulated art and splendor; time to finally buy that small fishing cabin that Dad has been dreaming about. Time to… wait a minute! You suddenly find out that your daughter just got laid off and has a mountain of debt; she is coming back home to live with her parents (that’s you!) with her three kids. What can you do to help her? Or should you do anything?


“The First National Bank of Mom and Dad may get the creditors off her back, but unless the debt and responsibility lesson is learned, the cycle will continue,” says Blankenship on CNN Money. He is talking about the vicious cycle of spending more than they can afford; many young people suffer the experience when they haven’t learned how to budget their income. How should parents behave in these cases? Should they pay their child’s debts, or at least pay enough to ease his or her immediate concerns? Or should they teach them a lesson and let them flounder in the muddy waters of excessive debt?

debt ball

Debt Solutions To Break Out Of The Debt Cycle

Not all debts are created equal. If your daughter gets money from a local loan shark — let’s say those payday loans — you’d better pay that debt immediately or else let her face the prospect of paying 500% interest (no kidding). So yes, help your child with that if you can. But if she owes a student loan, don’t worry too much. There are ways to ask for an extension. On the other hand, if your daughter spent foolishly on expensive cars and/or baubles, let her face the consequences. She has to learn how to face the music because one day you won’t be there to help out.

Establish Financial Priorities

What your daughter must learn first of all is to prioritize expenses, which essentially means setting up a budget. You may want to look into a budget application like YNAB, which we often mention on this site.

“We have to stop and prioritize. Food is first, then lights, then the house, then transportation. Until you do those things, you don’t do anything. It’s only after those things that the student loan and family loan get paid,” advises Dave Ramsey. If you offer your daughter a permanent refuge, she’ll pretty soon become a fixture in your home and in your wallet. Before asking her to leave, make sure she gets child support from the deadbeat she married.

Help Negotiate the Debt

Your first step as parents after establishing priorities is to sit down with your child and negotiate her debts… with her. She has to play a very important role in repaying creditors. Whatever amount you can give her must be defined as a loan or as a gift. If you have doubts, do not give her the cash, but pay the debt yourself. I know it sounds bad, but maybe your daughter needs to learn how to be responsible financially. You must also make clear that she has to show initiative in solving her economic problems. How much will she contribute? Will she look assiduously for a job? How long will she stay in your home?

Handling Financial Emotions

It is terribly difficult to say to a child that he or she must leave the home. I have a colleague (a lady) who still lives with her parents and she is 31 years old. I have asked her several times (indirectly and diplomatically) whether she was planning to move out and, every time, she would assure me that she was working on it. After 5 years, she still says that she will move out very soon. If nothing changes here, then how else is she going to learn to be independent? You can still protect your child in case of emergency, but if he or she doesn’t learn how to fly, what will happen when you are no longer around?

If one puts their mind to it, controlling one’s debt can be simple. There are no hidden secrets to reducing your burden — just a bunch of hard work and dedication. Do you know anyone who is in debt denial? Who fails to realize that they are digging a deep deep hole? How do we help these people? How do we get them to take ownership for their decisions? What triggered your wake up call?

Created January 7, 2010. Updated June 19, 2012. Copyright © 2012 The Digerati Life. All Rights Reserved.

{ 24 comments… read them below or add one }

traineeinvestor January 8, 2010 at 12:32 am

My parents dealt with the risk of children moving back home by selling the house and moving to an apartment that has no spare bedroom (only a single fold out bed in my father’s office) as soon as the last child had moved out. They were pretty clear why they were doing it too.

The one thing that parent’s should not do is impoversh themselves to support an adult child. It is a universal truth that a single parent can support multiple children as and when required but that multiple children are incapable of supporting a single aged parent in any circumstances.

Goran Web Design January 8, 2010 at 7:08 am

The amount of damage an older delinquent child can inflict on parents who are already smi-retired or worse, fully retired, is downright scary. I like the tough love approach being touted here, as otherwise the lesson will not be learnt, and the next crises will be for the account of the parental units again.

Kelly January 8, 2010 at 8:45 am

I was one of those newly-divorced women who moved back in with her parents with a child in tow plus debt. Once I managed to get my mental balance back (which I admit took a while – thanks Mom and Dad!) I got a real job and and paid off my debt. I paid rent too. Also, my parents made it clear that they weren’t my daycare.

It’s important to establish boundaries in these situations. Adult children need to remember that adding people to a household costs money – utilities, food, etc. It also takes up space that your parents would have to themselves. Remember, they don’t owe you anything. If they let you move back in, it is a favor – taking advantage of their generosity and leeching off them permanently is selfish and spoiled.

Craig January 8, 2010 at 9:54 am

Develop some better habits, if you can control your spending you will eventually get out of the debt cycle.

Kevin@OutOfYourRut January 8, 2010 at 10:16 am

My wife and I often contemplate moving to a smaller house, maybe in another state, in a few years when our kids are grown and on their own. But as they get older, and as we see so many “boomerang kids” (kids coming back to the nest) we’re seriously rethinking the smaller house idea.

If the house we have is big enough for one of the kids–and maybe a little one (or two) in tow–that may be the best thing we can do. If we can’t provide direct monetary support, giving them a low cost or free place to live for a time maybe the most economical action we can take for all concerned. Now the physical part of living together again… that’s another story.

But with the seeming permanent uncertainty in the economy and especially the job market, this is something that maybe needs to be considered in future plans. Not pretty, but life often isn’t.

Neal A. Deutsch, CFP January 8, 2010 at 12:54 pm

Great blog Jacques. Oftentimes in our practice, I do counseling sessions for parents who were on the cusp of “living the good life” into retirement when a crisis with the children dragged them back to being Mommy and Daddy. One thing we teach our clients is to learn the four words no parent wants to mutter to a child: “we-can’t-afford-it.”

Once the parent learns that it is OK to put themselves first, it’s not about a lack of love but survival. Teaching your children from a very early age as in an article I wrote some time ago for Rivertown Magazine — about finances — intills a very real sense of values and knowledge. My favorite saying about our loving kids? “They move out, but they never leave!”

John DeFlumeri Jr January 8, 2010 at 5:46 pm

Let them learn there lessons, but offer advice always, and money sparingly, I agree!

John DeFlumeri Jr

Erik Folgate January 8, 2010 at 10:56 pm

Great Article, I like how you talked about it from a different perspective, because there are a lot of parents out there with kids who fell into the debt cycle. Also, thanks for being a sponsor for the Money Crashers giveaway!

kenyantykoon January 9, 2010 at 7:10 am

getting out of debt should be one of the things that people yearning for financial freedom should tackle with all they got before the year is out. because if this issue is procrastinated over and over again, life will lose its lustre very quick. Trust me, I know.

Cruise and Stay January 9, 2010 at 4:32 pm

I went through a period of a year where I was up to my eyeballs in debt. The only way out it to PLAN!! At the time I was miserable but things change and time moves on. Today I’ve learned how to control my spending and make better budgets.

Holly January 11, 2010 at 4:45 pm

My husband and I are soon going to be moving in with his parents for two years while he gets a 2 year tech degree that will hopefully yield better job results than his 4 year degree has (sad isn’t it). We have debt mostly because of two time periods where we were both out of jobs at the same time. A small fraction was for computers and gifts.

His parents are not allowing any break – he must begin school immediately upon moving in. They would support us longer if needed, I’m sure, but neither party wants that. We are as interested in our independence as they are in theirs. I have no doubt that this 2 year break will result in huge success, both in eliminating debt and in our career aspirations.

So after sharing my story, I just want to say that we very much appreciate his parents’ offer to help us. And we’re tired of needing help. Between that and their particular requirements for living there rent-free, there will definitely be no taking advantage of the situation. Hopefully all parents out there are willing to help their children when in need, but will also exert a tough love approach where they assign requirements and deadlines. This will help both parties.

Greg January 11, 2010 at 9:38 pm

I owned a mortgage company and development company for 18 years and can’t emphasize enough how important it is to teach about debt management and the long term downside of taking on debt at an early age. Creating budgets and installing a savings mentality is the way to go.

Samuel Metz March 16, 2010 at 2:08 pm

It should be against the law to live without having a job. I guess that is Socialism. I am sure it would beat those who do not want to work and at the same time accommodate those who legitimately need a break. Life can be really tough at times. Count your blessings if you are not in that boat.

Child Support Enforcement September 5, 2010 at 12:58 pm

This is very good information on how to break the debt cycle. You can also make sure that your children and grandchildren aren’t owed any child support. It is not the sole responsibility of one parent. When you have help raising your children, it makes it just that much easier to help avoid and stay clear of debt.

Ninja October 19, 2010 at 3:35 pm

If you are in debt you need to quit pointing the finger at someone else and realize that 99.9% of the time it’s because you put yourself there. We could have a pity party and blame our student loans, credit cards, and car payments on someone else, but the truth is: No one put a gun to your head and forced you to take on the debt. And if someone did put a gun to your head then all I can say is… man, that really sucks.

You can’t even begin to manage your debt until you’ve accepted responsibility for your situation. So have you done that yet? We all need to move forward and start punching debt in the face. This is what you don’t want to do:

My suggestions to get debt under control:

1) Quit being an idiot. I’m serious. You can’t make stupid money decisions and expect to make progress. No, buying that $30,000 Prius to save a few bucks at the pump is not a smart move. No, you shouldn’t gamble on “just one more hand” of blackjack to win all your money back. And just because something is “on sale” doesn’t mean you have to buy it. I love when people say “I saved $20 on this pair of shoes.” When I’m thinking to myself “Umm, no. You spent $80 to get them, stupid-face.”

2) Figure out how big of a mess you made. I can’t believe there are people out there that don’t even know how much debt they have. You gotta get your ish together and write that crap down. All you have to do is add up your credit card statements, car payments, student loan, bank loans, etc. Once you get that number, move on to step 3.

3) Make a game plan. So you just realized you have $100,000 in debt and you make $20,000 a year. Guess what? You have a problem. You can’t make a plan to pay back $100K on a $20K income. You need to start applying for better paying jobs, or at the very least, pick up a side hustle. The more money you make, the faster you’ll be able to pay everyone back. This isn’t rocket science people.

4) Stay committed. There will be a time (or in my case many times) where you’ll begin to lose focus. It’s tough working your butt off every day and night for 2 years and still being in debt. Trust me, I know. It took me a little over 2 years to pay back my $28,000 student loan. But at the end of the day, I wanted to be debt free more than I wanted to stay in debt. So I fought the good fight, delayed gratification, and eventually found myself in debt free territory. It’s a great place to be, you should come join me.

Mrs. Accountability October 19, 2010 at 4:50 pm

Unfortunately I do know people who are in denial about their debt. I don’t know how to make them see the light. I have tried to hint around but it doesn’t do much good. Maybe I will send them a link to this post. :-)

Silicon Valley Blogger October 19, 2010 at 5:07 pm

Thanks Ninja, I like this fresh way to present an age old issue: how do we eliminate debt? How do we escape the clutches of debt hell? I am a huge fan of Ninja’s work. Make sure you check him out!

Ninja October 19, 2010 at 5:11 pm

I too know some people in debt denial, it’s sad. But at the end of the day we have to let people make their own decisions….even the stupid ones.

Brucebucks October 19, 2010 at 11:40 pm

Thanks for the reminder that each of our debts is our own responsibility. We got into debt and now it is our responsibility to get out of it.

DomainS October 20, 2010 at 7:30 am

Obvious advice, the problem is far deeper than that, and what you say, will not apply to everyone…

Kris October 20, 2010 at 8:34 am

Everyone with debt “wants” to get out. But few come up with a plan, a real plan. Without one, you have no “map” to get you where you want to go. And I’m not talking signing up for a debt management program – that can be part of the plan, but is not a plan in itself.

Stella October 20, 2010 at 12:51 pm

According to Ninja, “Quit being an idiot”. That applies to much more than just being in debt, LOL!! As DomainS points out, the problem is far deeper than can be deal in a blog post. While the steps to getting out of debt are fairly straightforward, unless you deal with the underlying issues that got you into that mess to begin with, you’ll probably end up in the same situation down the road.

Brad October 21, 2010 at 12:18 pm

LOL, I’ve been thinking about buying a new car to save on gas. It gets exciting looking at new cars but then I look at my credit card debt and remind myself that there are more important uses for the little money that I have.

David @ Best Savings Rates December 8, 2011 at 12:12 pm

Note that delayed gratification, fiscal discipline and making tough financial decisions come with emotional and financial maturity. If you’ve “grown up” then you tend to make better financial decisions.

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