One of my universal truths about divorce is that it always changes your financial situation and most often, it means doing more with less. For many people, divorce also means debt. This month’s financial guest post from Suzanne Cramer is about ways to handle debt after divorce. Here’s Suzanne:
Debt may have been the cause of your divorce, a catalyst, or just the result of the financial strain divorce places on your budget.
If you have debt, there is hope and knowing that bankruptcy isn’t necessarily your best option may help ease the burden. There are several ways you can tackle debt head on and knowing your options is half the battle.
Consider going it alone-with a plan in place…
You have some unsecured debt; credit cards, medical bills, maybe even a few collection accounts, that accumulated before, after or during your divorce but you are able to keep up with the payments. You may be able to manage your situation on your own.
You can use a Do It Yourself (DIY) method, such as Debt Payment Pro. This is a FREE tool that can help you pay down your debt. Enter simple information about your debts. Based on your debts, Debt Payment Pro will calculate your possible savings. Then follow your personalized repayment schedule to pay off your debt more quickly and save on interest. It can become easy to send just the minimums and not reallocate payments to other creditors. This approach requires discipline and close attention to your payments.
Get some help-lower your interest rates and pay off debt in 3-5 years…
Maybe you are realizing your post-divorce debt is becoming overwhelming and you can’t keep up with the minimums or have fallen behind. As a result, your creditors have increased your interest rates and the likelihood of you continuing to manage your debt on your own has become too much for you to handle.
You may want to consider entering a Debt Management Plan. Debt Management Plans, which are often called DMPs, are plans that allow debt relief providers to work directly with creditors to negotiate new terms for the repayment of your debt such as, reduced interest rates, lower monthly payments, and waived fees such as late fees and over the limit fees. With a DMP you will make one payment to a debt relief provider who will then disperse the funds to your creditors each month. A debt management plan is a great option for you if you just need better terms and want to repay 100 percent of your debt.
Settle your debt for less than what you owe but, avoid bankruptcy…
If you find yourself scraping to just pay the essentials; rent, food, and utilities and have no money left to pay your creditors but want to avoid filing bankruptcy, you may want to consider a Debt Settlement Plan.
Debt Settlement is an attractive alternative to bankruptcy for you if you can afford to pay back at least a portion of your debt, but find a Debt Management Plan payment unaffordable. With Debt Settlement, you make monthly deposits to a Settlement deposit account in an amount you can afford. You do not make monthly payments to your creditors, and your provider works to negotiate with your creditors for a less-than-full repayment.
When settlements are reached with creditors, settlement payments are paid from the Settlement deposit account. There are definitely pros and cons to using Debt Settlement to pay off your debt so it is important to understand what to expect.
Filing bankruptcy may be right for you…
While considered a last resort, bankruptcy may end up being your only option. If your financial situation leaves you unable to pay back even a portion of your debt, you may want to explore whether filing bankruptcy makes sense for you.
Dealing with debt after a divorce is tough; stretched thin budgets, attorney fees, and going it alone financially speaking can take its toll. Taking the time to evaluate your options and determine what works best for you and your situation is important. Once you have reviewed your options begin to research companies that can provide the help and on-going support you need to get out of debt and develop sound financial habits to avoid debt in your newly single life.
The Divorce Coach Says
If you’re dealing with debt, then the internet is going to one of your best friends – there’s tons of free information available. As Suzanne says, there are options but it’s important to understand what each entails. CareOne Debt Relief Services also offers two guides on this topic which you can download for free:
- Ten Things You Must Know to Succeed on a Debt Management Plan
- Nine Things You Must Know to Succeed on a Debt Settlement Plan
Suzanne Cramer has also shared her own life-after-divorce story with me – it began with feeling that just five minutes would change everything.
Photo credit: alancleaver_2000