In an ideal universe, all parents would be perfectly financially solvent before ever having a baby. However, that is not the case. As financial writer Carl Packman notes: “Wages are falling in real terms and household debt is 153 per cent of GDP. On average each household in the UK is bagged with nearly £8000 in unsecured debt.”
While some couples work to put off childbearing until their household debts are settled, others realise that fertility does not last forever and that if they want the family of their dreams, they had better get started. Of course, babies are not known for their money-saving capabilities. The average cost of raising a child in the UK is £222,458, approximately 58% more than it was only ten years ago. As costs continue to rise, it becomes equally financially imprudent to delay childbearing, especially when a delay for too long results in expensive fertility treatments.
So, in short: for whatever reason, many parents both find themselves with a new infant and the average £8000 — or more — of household debt. What should parents do?
Is Saving Still a Strategy?
Mums and dads embrace the concept of “saving money” as if it were possible to save all that much with a new infant needing clothes, nappies, furniture, and toys. Yes, you’re likely to spend a little less money at the pub or the cinema, but you’ll more than make up for it with the cost of baby essentials. If you need daycare, the cost of child care services will more than outweigh any savings gains.
Yes, new parents need to be financially savvy. However, saving money itself is not enough. If your household is already burdened by a high income-to-debt ratio, you’ll be lucky to make the minimum payments to your creditors as you start stretching your budget to pay for your new baby’s needs.
What about earning more?
“Just earn more money!” is the second battle cry, as if a new mum breast-feeding an infant is prepared to interview for and take on a new, challenging job. Even fathers who want to step up to the plate find it difficult to immediately take on a new career — after all, if finding a better job were that simple, everyone would do it.
Yes, present a case to your boss about a long-needed raise. Yes, take on that stay-at-home job selling jewelry or used books. However, don’t expect to magically earn enough money to pay off your debt. You might be able to bring in a bit more here or there, but you’ll likely need a third strategy.
What about debt settlement?
Many people are wary of debt settlement because they believe it will negatively affect their credit rating or make them appear irresponsible. The truth is that maintaining large debts is what really affects your credit rating, and failing to pay debts on time is what makes you appear irresponsible. If you are completely in over your head with debt, it’s time to contact a debt relief service and talk about settlement options. Often, it’s the only way to wipe out your debt, though there are options. SettleMyDebt recommends the flexibility of debt settlement over an IVA and many financial analysts agree with this approach.
If you have a baby and have debt, do everything you can to put as much towards your debt as possible. Sell off assets, ask parents for gifts, take a second job, or embrace the minimal life. However, sometimes even all of these steps are not enough, and settling your debt with a third party is the best way to prepare your family for the future. Once your debt is gone, your new job is to ensure you protect your child by spending within your means and avoiding getting caught in another debt trap. After all — you’re going to need that £222,458 for child-rearing.