Dealing with your parents’ debt can be very challenging. Whether it’s due to unexpected medical expenses or years of not saving enough, it’s natural to want to help. But this situation requires a careful approach to avoid emotional and financial pitfalls.
In this post, I’ll show you how to help your parents get out of debt along with real-life lessons from my podcast.
Real life lessons about debt and retirement
Meet Michelle and Eric, a couple in their 50s who confront the harsh reality of their financial situation on my podcast. Despite having a decent income, they are far from being able to retire comfortably.
Michelle explains her regret over not saving up enough for retirement yet, her debt, and how it’s affecting her relationships with her husband. She also has a shocking revelation about how her upbringing influences her today.
Michelle: [00:03:32] I don’t feel safe and secure with my financial life. Since COVID, we’ve actually started saving money. And we both put money in our IRA for two years in a row. But we live like we’re 25 years old. Just the whole thing about money is triggering. I was supposed to get married and have a husband who took care of me, who took care of my finances, who invested for us. I didn’t think I’d be 52 years old with very little savings, living like 25. When something happens it’s like, “Oh my God, how are we going to pay for that?”
Ramit Sethi: [00:04:14] Where did that story come from that that was how it was supposed to be? Where did you start telling yourself that story?
Michelle: [00:04:20] My parents helping me didn’t really help me.
Ramit Sethi: [00:04:23] Tell me more about that.
Michelle: [00:04:25] Yeah, so they always helped me even when I moved away for a little bit. I lived in North Carolina and I wanted to get a one-bedroom apartment. My mom’s like, “Nope, you need a two-bedroom apartment.” So she paid for the two-bedroom apartment. She’s just always like, I wanted to go on a trip, mommy gave me money. I wanted this, mommy gave me money. So it was a pattern and why not? Mommy gave me money. I needed it. I wanted it. So I took it.
Ramit Sethi: [00:04:58] And looking back, what lessons do you think you took away from your parents always helping you?
Michelle: [00:05:06] Maybe gratitude and generosity, how people are generous with money and grateful for their financial support.
Ramit Sethi: [00:05:16] Anything else?
Michelle: [00:05:18] I don’t think it helped me grow up or be responsible with money. I never had to budget my whole life. I never knew anything about money. We never talked about it at my house either. It was my upbringing. I’m Jewish. So you marry a doctor, the doctor takes care of you. My dad took care of my mom. It’s generational, I think for us.
Ramit Sethi: [00:05:46] And when you were meeting Eric, did you have those conversations?
Michelle: [00:05:53] No, I don’t think so. It was a lot of assumptions. I don’t think we ever talked about money. I assumed we both grew up in the same town, we both grew up upper middle class. No, we’d never discussed money before we got married ever.
Ramit Sethi: [00:06:11] And how does money come up in your relationship?
Michelle: [00:06:15] It comes up with a lot of feelings and anger.
Ramit Sethi: [00:06:19] Oh, like what?
Michelle: [00:06:23] Like anger. I’m angry at him for not being responsible, for not taking care of me, for not talking about it, for not being involved in the savings or any bills, all of that.
Although she has been managing the family finances for 25 years, Michelle admits that she hasn’t sought outside advice or learned from others about better financial management. But there’s a lot a family can do together to improve their future.
Ramit Sethi: [00:12:33] And, Michelle, you mentioned that you track the family’s finances. But you also mentioned that you’re frustrated with the family’s finances. I’m curious about that.
Michelle: [00:12:48] I track them. I try to save money and then there’s always emergency that comes up. So the savings stuff that I have in savings never really goes to savings. It goes to the emergency.
Ramit Sethi: [00:13:02] And how do you think that other families do that?
Michelle: [00:13:06] I have no idea.
Ramit Sethi: [00:13:09] So it’s been 25 years. I’m sure you’ve thought like, ah, it feels like one step forward, two steps back. For over 25 years, have you asked other people? Have you looked into how others manage their money?
Michelle: [00:13:24] No.
Ramit Sethi: [00:13:26] What do you think about that now that you’re talking about it?
Michelle: [00:13:32] I think I grew up in a house where we didn’t talk about money. So I don’t feel comfortable going up to someone and asking them about how they talk about money. I do think it’s something between a husband and wife and I just never asked anybody.
Ramit Sethi: [00:13:52] What might be the other ways to learn about how to manage money?
Michelle: [00:13:58] Programs, online.
Ramit Sethi: [00:14:02] What else?
Michelle: [00:14:04] Reading articles. I don’t know.
Ramit Sethi: [00:14:08] Books, events, financial advisor, there’s a million different things. I don’t mind that you haven’t done it. We all start from someplace. There are a lot of things I should have been doing 20 years ago. Fine. I wish I had. But all I can do is deal with where I am today. What I want to understand is your frustration around money because, Michelle, you are frustrated with money. You told me. But you’re also the one who has been managing the family finances for 25 years. So help me understand that.
My conversation with Michelle and Eric highlights the importance of open communication and financial education within a family.
When it comes to helping your parents with their debt, understanding their background and encouraging them to seek knowledge can make all the difference. But there are endless real-life examples that can serve as a wake-up call for managing debt before it gets out of hand.
Now, let’s meet Kenna and Ryan, who are 36 and 45 and struggling with massive debt. Their story is a powerful wake-up call about the dangers of unchecked spending habits and their impact on a family’s financial future.
[00:42:04] Ramit: Okay. Ryan, let’s go through the net worth section. What do you see first? How much?
[00:42:08] Ryan: Oh, assets, 500,000.
[00:42:10] Ramit: Okay. What is that?
[00:42:12] Ryan: That is our cars, our home, uh, and that’s it.
[00:42:17] Ramit: How much is the house worth?
[00:42:20] Ryan: Almost all of it. Probably 460.
[00:42:22] Ramit: Okay, got it. And your investments.
[00:42:26] Ryan: 1,000 bucks.
[00:42:28] Ramit: Okay, your savings?
[00:42:30] Ryan: 50 bucks.
[00:42:32] Ramit: Okay. And your debt?
[00:42:35] Ryan: 400,000.
[00:42:37] Ramit: Okay. What is that 400,000?
[00:42:38] Ryan: Our house, our credit cards, and our personal loan.
As we continued to talk, they begin to unpack what “making it” means to each of them, exposing a deeper disconnect in their financial goals and lifestyle expectations. This leads to an eye-opening moment that might just shift their perspective on what it truly means to live a rich life.
[00:48:01] Ryan: Yeah. We are making it. We’re not struggling to put food on the table. We’re not telling our kids they can’t go to the waterpark for their birthday. You know what I mean? We are making it.
[00:48:14] Kenna: However, some of those purchases though were made out of credit cards.
[00:48:17] Ryan: Yeah, credit cards.
[00:48:18] Kenna: And that’s what I was going to say. We make enough money to pay all of our bills, but if we didn’t have credit card bills, we would have a lot more.
[00:48:28] Ryan: Yeah, things would be a lot. We would be able to–
[00:48:31] Ramit: Wait. I’m not sure I can buy the thing of like, we’re making it, but we have over $30,000 in credit card debt.
[00:48:43] Kenna: Yeah.
[00:48:44] Ramit: That’s not making it.
[00:48:45] Kenna: No, I totally agree with you.
[00:48:48] Ramit: What does making it mean to each of you? Ryan, what’s making it mean?
[00:48:56] Ryan: I could go to that restaurant without even thinking about it. Just walk right in and get my meal.
[00:49:02] Ramit: Okay. Kenna, what does making it mean to you?
[00:49:05] Kenna: Being able to save enough that I can retire early.
[00:49:08] Ramit: Okay. Um, Ryan, hearing your definition versus Kenna’s definition, what do you notice?
[00:49:19] Ryan: Uh, my definition is very small.
[00:49:21] Ramit: Yeah. It’s so small that it’s a speck in the landscape of a rich life. To be able to go out to a restaurant, yes, I can see why it’s important. When I was in my early 20s, I wanted to be able to go and order appetizers because when I was a kid we couldn’t do it. So I totally get what you’re saying. I totally, deeply understand it. But I also think now, especially at the age of 45 with two kids, there’s got to be more to a rich life or more to making it than just to be able to go to a restaurant.
[00:50:00] Ryan: That would be amazing.
[00:50:01] Ramit: Mm-hmm.
[00:50:03] Ryan: And the retiring early, I don’t know, I’ve been pretty sloppy, so I’m already 45. Probably going to have to work this one out and, uh, I don’t know. I mean, just not having a whole lot when I’m a kid. I’m super satisfied, if we could sell this house and buy a nicer house than this one and just be chilling on the rocking chairs, that would be enough for me.
I mean, I would feel rich at that point. And I mean, I know it’s a different definition than a lot of people’s rich, but I would feel rich having the same house for our kids to come back to in college, which Kenna and I do not have. We can’t go back for the holidays to our house and go to our old rooms. I’d like to have that for our girls. That would make me feel like I’m living a rich life.
Kenna and Ryan’s journey through overwhelming debt, alongside Michelle and Eric’s financial struggles, highlight the critical importance of clear communication and aligned financial goals. Just as these couples work to navigate their challenges, your efforts to help your parents overcome debt can make a significant difference.
Step 1: Understand Their Financial Situation
The first step is understanding where your parents stand financially. This involves a candid and empathetic conversation about their income, expenses, debts, and overall financial goals.
To get started, consider asking these questions:
- Where did they learn about money? Understanding their financial background can provide insight into their habits and attitudes toward money.
- How much do they make per month? Knowing their monthly income is crucial for budgeting and debt repayment planning.
- What’s their average monthly credit card balance? If they carry a balance, ask why it’s not zero and how they could work towards paying it off.
- Do they have any investments? Understanding their investments can help assess their financial health and plan for the future.
- Are they maximizing their retirement accounts? Ensure they fully utilize their 401(k) or other retirement accounts.
Having this conversation can be challenging, but it is necessary to get a clear picture of their financial situation. Approach the discussion with empathy and patience, focusing on listening more than talking.
Step 2: Evaluate Your Ability to Help
Make sure you’re in a solid position to offer help without jeopardizing your financial stability. Here’s what you need to consider:
- Are you free from high-interest debt? If you’re still paying off your debts, focus on your financial health before taking on additional responsibilities.
- Do you have a strong emergency fund? Before extending financial help, ensure that you have a safety net in place.
- What’s your capacity to help? Determine how much financial support, time, and emotional energy you can realistically offer without causing strain.
It’s natural to want to help your parents, but you need to approach this situation from a place of stability to avoid creating further financial stress for yourself.
Step 3: Explore All Available Options
Once you fully understand your parents’ financial situation, the next step is to explore the various options available to help them manage and reduce their debt.
Debt Consolidation
Debt consolidation involves combining multiple debts into a single loan with a lower interest rate. This can simplify the repayment process by reducing the number of payments your parents need to keep track of each month. By consolidating high-interest debts, like credit card balances, into a lower-interest loan, they can save money on interest and pay off their debt faster.
Refinancing
Refinancing is another strategy that can help lower the interest rates on existing loans. This is particularly useful if your parents have high-interest mortgages or car loans. By refinancing, they could secure a lower interest rate, reduce their monthly payments, and free up cash to tackle other debts.
Government Programs and Assistance
Various government programs are designed to assist seniors and others struggling with debt. Some programs offer lower-cost healthcare, housing assistance, or tax relief, which can help reduce the financial burden on your parents.
Research available programs at the local, state, and federal levels to see what support they might qualify for. These programs can provide immediate relief and help your parents get back on their feet without resorting to more debt.
Step 4: Set Boundaries and Create a Plan
It’s crucial to set clear boundaries when offering financial help. Discuss with your parents how much support you can provide and agree on a debt repayment plan that works for everyone.
This plan should be realistic, considering your parents’ financial situation. You can check their progress and adjust the plan if you want to stay involved.
- Clear communication: Ensure everyone understands their role and responsibilities.
- Realistic goals: Set achievable targets for debt repayment.
Regular check-ins: Monitor progress and make adjustments as needed.
Step 5: Encourage Financial Literacy
One of the best ways to help your parents avoid future debt is by encouraging them to improve their financial literacy.
Financial literacy can empower them to make better financial decisions and manage their money more effectively. Here are some ways to encourage this:
- Recommend Books and Courses: Share resources like books, online courses, and podcasts that cover personal finance basics.
- Set Up Budgeting Tools: Introduce them to budgeting apps or tools that can help them track their spending and savings.
Discuss Financial Goals: Help them set realistic financial goals and create a plan to achieve them.
A stronger financial future for everyone
Helping your parents get out of debt can be challenging, but it’s also a powerful opportunity to strengthen your relationship and secure a brighter financial future.
Consider gifting them my latest book, Money for Couples. It’s designed to help couples align their financial goals, work together, and avoid future conflicts over money.
Whether you’re supporting your parents or focusing on your own relationship, Money for Couples offers practical strategies to ensure you’re both on the same page and never have to fight about money again.
