Financial Planning for People Facing Challenges with Debt

A practical guide to financial planning that can help you avoid more debt down the road.

Couple sits at a laptop to focus on financial planning

Any financial expert will tell you that financial planning is essential for your long-term stability and success. But when you’re struggling to pay off credit card debt and just make ends meet, it can be tough to plan ahead. Still, even if you’re working with a limited budget there are practical steps you can take to secure your finances. With the right strategy, you can start working to get out of debt while shoring up your finances against potential challenges in the future.

This financial planning guide can help you understand how to overcome challenges like credit card debt and low income. The goal is to create a financial plan that will help you get ahead and maintain stability long-term.


The importance of financial planning when you have limited income

When you say “financial planning” people usually think of complex investment strategies that only apply to the ultra-rich. But financial planning simply means looking ahead and organizing your finances, so you can minimize your financial risk. And risk isn’t just limited to investments. The biggest risk to your finances is usually an unexpected event – a medical emergency, a layoff or a divorce. And even positive life events, like getting married and having kids can have a negative impact on your finances if you don’t plan ahead.

In this sense, financial planning is even more crucial when you face challenges like not having enough income or having too much credit card debt. You need to develop strategies and shore up your finances to get ready for whatever may come.

Financial planning tips when you’re in debt

These general tips can help you begin to protect your finances against common challenges that you will face:

Always maintain a formal budget

A budget is the foundation of a stable financial outlook. If you don’t have a budget already, we offer a guide to budgeting made easy. Build a budget that balances your income versus your expenses. It may sound simple, but if you spend more than you earn, you’ll just keep increasing your debt.

You need emergency savings

Even if you have to start small, you need to be saving something to generate an emergency savings fund. Find one expense in your budget that you can cut and divert that money to be a recurring monthly saving amount.

Always plan ahead for expenses that fall outside your normal budget

Things like the holidays, vacations, and back to school shopping need a specialized budget. Once you plan how much money you need, you should start saving accordingly. The same is true for big goals, such as getting married and having kids.

If traditional monthly payments aren’t getting you out of debt, you need to find a better way to pay it off.

People often get stuck in a cycle of minimum payments, but those don’t make it easy to get out of debt. Explore options for debt relief, such as debt consolidation and credit counseling. These will help you eliminate your debt faster and may reduce your monthly payments, which would free up more money to save.

Once you pay off a debt, immediately divert that money to saving

If you don’t immediately allocate that money to savings, you’ll start spending it. So, as soon as you pay off the bill, add that money to your recurring monthly savings. This helps ensure that you build savings consistently.

Even if your finances are stable, certain life events can derail your strategy. Thinking about how these events could potentially affect your financial strategy and planning ahead for them can help you avoid new problems with debt.

Planning for changes in your employment

Whether you face unemployment from a layoff, reduced hours at work or you just want to change your career path, changes in your employment have a significant impact on your finances. Your job is your income and without it, most people end up relying on credit cards and even worse financing choices like payday loans. This guide explains how to plan strategically, so you can survive challenges with your employment without creating programs with debt.

Protect your finances against employment changes »

Planning for natural disasters

Dealing with natural disasters is a fact of life for many Americans. Hurricanes, tornados, flooding and fires can put your entire future at risk. But there are steps you can take to prepare your finances for the worst, so you can weather the storm. Learn how to take the right steps to ensure insurance claims can be handled efficiently and you can recover quickly.

Get your finances ready for the next disaster »

Dealing with the death of a spouse

The emotional impact of losing your life partner is overwhelming, so the last thing you want to be worried about are your finances. Learn what steps you can take to ensure your family will be secure if you or your spouse passes away. If you’re dealing with the death of a spouse now, we also offer guidance on how to regain financial stability quickly.

Secure your family’s financial future »

Separating your finances during divorce

Money is not only a leading cause of divorces, it’s a leading cause of stress and conflict during divorce proceedings. This guide covers everything you need to know about dividing your finances during divorce. Learn how to make the transition as easy as possible, so you can both move forward.

Handling your finances during divorce »

Budget Planning

There are certain events throughout the year that fall outside your normal household budget. These events often lead to credit card debt, because you don’t have room for them in your budget once all your other expenses are paid. So, you need to plan ahead for these one-off expenses, so you can avoid new challenges with debt.

Holiday spending

The winter holidays are the most expensive time of year for most Americans. Most people pile on credit card debt just to make the season merry and bright. But if you start planning early, you can avoid overspending that leads to credit card debt. Use our free interactive holiday spending planner to set a budget for this holiday season, so you can avoid a holiday debt hangover.

Set a holiday budget »

Back to school spending

The back to school shopping season is the second most expensive after the winter holidays for families with children. This back to school spending guide will help you save money by planning ahead and taking stock of what you already have. Learn how to set realistic expectations for your kids and include them in the budgeting process, so they can learn about money by helping you with their back to school shopping list.

Set a back to school budget »

Vacation spending

Vacations are another major source of credit card debt each year for Americans. Nine out of ten people say they use credit cards to getaway, but putting your vacation on plastic only increases your financial stress. Learn how to set a vacation budget that fits your finances, so you can plan ahead to save and avoid added credit card debt.

Set a vacation budget » 

Retirement Planning

One key focus in financial planning is retirement. Most Americans are behind when it comes to saving for retirement. When you’re living paycheck to paycheck, the idea of saving for retirement can seem impossible. However, there are tools you can use to start taking small steps towards achieving your retirement goals.

Find a solution to handle your debt first

The first step to starting a retirement savings plan is usually to take control of credit card debt. If you’re not already enrolled in a debt management program, you should talk to a credit counselor for a free evaluation. This program can reduce your total credit card payments by up to 30-50% if you qualify. That would free up money so you can start saving for retirement.

Next choose a retirement savings plan

Once you take control of your debt so you can start saving for retirement, it’s important to understand retirement tools. If your employer offers a 401k plan, this is usually the best way to save, especially if they have a match program. Otherwise, you should consider opening an Individual Retirement Account (IRA). This will give you the vehicle you need to make your retirement savings grow effectively.

Find free resources for setting an effective retirement plan »

Use pay raises to start and increase your contributions

If you’re living paycheck to paycheck now and every penny is accounted for, then use your next pay raise as a jumping off point for your retirement savings. If you have a budget that’s balanced against your income now, then any pay raises can be used to boost your retirement savings. Be proactive about asking for annual reviews and ensuring you’re getting paid what you are worth. Then you can gradually build your retirement savings.

Family Financial Planning

Financial planning is challenging enough when you’re single, but it gets even more challenging when you throw someone else and kids into the mix. There are unique financial challenges that come with getting married, having kids and transitioning to care for aging parents. We cover each of these topics, so you can manage your family finances to minimize the financial stress they can cause.

Debt-Free wedding planning

Getting married is a major expense and many couples are putting off tying the knot because they can’t afford it. But a beautiful wedding doesn’t have to break the bank. This debt-free wedding guide explains how to get hitched without starting your marriage in debt.

Plan a debt-free wedding »

Financial strategies for single parents

Raising children as a single parent brings some unique financial challenges. It can be hard to support a family with only one income earner, especially if there’s little or no financial support from the other parent. This guide helps single parents overcome these challenges to achieve lasting stability for their household.

Money management for single parents »

Talking to your aging parents about money

As your parents get older, it’s critical to take time to discuss money and financial matters. Putting off end of life planning can put the whole family at risk. But starting a conversation about things like Power of Attorney and estate planning isn’t always easy. This guide helps you start a financial conversation with your parents, so everyone can have peace of mind.

Learn what topics you need to cover with your parents »

Contributors :
April Lewis-Parks [email protected]Director of Education and Corporate Communications
Meghan Alard [email protected]Financial Literacy Specialist