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Preparing for the Birth of a Child While in Debt

Crib? Assembled. Diapers? Stockpiled. Nursery? Painted. Now it’s time to sit back, relax, and wait until your baby decides it’s time to make an appearance. Right?

Not quite. While you should load up on sleep while you still can, now is also the time to get your finances squared away so you can best support your child. If you still have debt, don’t panic. Use this as an opportunity to take a close look at your finances and come up with a plan for paying it down.

Here’s more on preparing for the birth of a child while in debt.

Create an Airtight Budget

The time to discover there’s a leak in your boat is before you’ve pushed off from the shore — and certainly before you’re in the middle of the lake. The time to optimize your budget is before your little bundle of joy arrives. Only by clearly seeing and understanding your spending habits can you decide where to make targeted changes.

Once you’ve cataloged all your sources of income and all your expenses, see how close you are to applying the 50/30/20 rule. This guideline dictates half your should income go toward essentials. Less than 30 percent should go toward wants. And, at least 20 percent should go toward debt repayment and savings.

Now that your priorities are shifting, you want to search for specific ways you can reduce the costs of your “wants” and reallocate those funds to debt repayment, building your emergency fund and saving up for childcare costs. Every penny you avoid spending on a non-essential purchase you can apply toward your growing family’s financial stability.

Explore Your Debt Relief Options

By streamlining your spending, you may be able to pull yourself out of debt before the big day. Or, like many Americans, you may need a more structured strategy than doing it yourself. Here are three options to consider if you feel you’re in over your head:

  • Debt Management: You’ll make a single monthly payment to a credit agency. The agency will distribute your funds to creditors, often at a reduced interest rate.
  • Debt Consolidation: You’ll take out a loan and use it to pay off your other outstanding debts. Then you’ll pay that loan down over time, often at a lower interest rate.
  • Debt Settlement: You’ll make monthly deposits into a special account until it hits a certain amount. Then a team of negotiators will contact your creditors, trying to resolve your debts for less than their original balances.

Some companies, like those within Freedom Financial Network, offer settlement, consolidation, or a combination of these strategies to enrollees who qualify. The key is figuring out the most fitting option for your needs based on your credit score, debt level, debt type and income.

Research the pros and cons of each tactic before committing, and make sure you have a realistic feel for the timeline. You want to be able to commit to whatever strategy you choose for as many months as it takes to eliminate your debts.

Minimize Your New-Baby Debt

While you can’t put a price tag on the love you’ll have for your new baby, you can determine the cost of raising the child.

One survey found over half of parents estimated the cost of raising a baby in its first year would be $5,000 or less. The actual cost came out to $21,000 for households earning $40,000 and $52,000 for households earning $200,000.

Start researching now so you can minimize your cost of raising your new child while still providing them a great quality of life. See what supplies you can borrow from friends, family members, neighbors, and coworkers — many parents are looking to re-home items their children have outgrown. Look for opportunities to use coupons and shop sales, rather than buying baby items full price. Start with the essentials; it’s hard to resist the accessories on the shelf at the store, but every extra dollar counts.

The earlier you start preparing financially for your child’s birth, the better you’ll be able to tackle your debt and make the most of parenthood.