What do you do with the debt you accumulated during marriage or have incurred as a result of divorce proceedings? This general article from divorcedmoms.com gives four strategies for freeing yourself from the burden of divorce-related debt.
If you have a lot of small debts, it makes sense to consolidate them into one by taking out a single consolidation loan. However, it can be tricky for newly-divorced people, especially women who have been out of the workforce raising children, to convince a bank to provide an unsecured loan. One solution can be to approach a family member who has good credit to guarantee a loan so that you can pay off your debt. If you are lucky enough to have a relative willing to do this for you, always make sure you make payments on time and do not skip payments—in short, never jeopardise their good credit rating. If you do not have access to relatives who can help, you may find a credit card balance transfer to a low or interest-free period card will enable you to consolidate your debts into one simple regular payment, which can provide great peace of mind.
If you are in the middle of family law proceedings, discuss with your lawyer the implications of consolidating relationship debt and keeping it separate from ‘post-separation debt’. Your lawyer will be able to strategise with you how best to present your financial situation to a court so that debts are divided fairly. Note that your lawyer can advise you on how to spend money and deal with debt in a way which affects things like spouse maintenance and property settlement in your favour.
Have numerous credit cards and finding payments out of control? Firstly, stop using the cards! Secondly, prioritise bills by balance: pay the lowest off first, largest last. Pay the largest amount you can afford on the smallest bill and only make minimum payments on the others. Once the smallest card is paid off, you increase the payments on the next bill in line, and so on. This is the quickest way to pay them off.
Speak to your family lawyer about whether you should be filing an application to have your Ex pay your cards off as part of an interim spouse maintenance order. Depending on your family circumstances, it may be that you don’t even need to pay old bills. If the capacity to pay them off existed during the relationship, you may be able to get a court order to have your ex pay them off after separation.
If you are struggling and experiencing difficulties in paying bills on time, make sure you attempt to negotiate with the bank or credit card provider. Most companies are sympathetic to people in crisis and will often be quite flexible in attempting to arrange a way for balances to be paid off, perhaps through restructuring fees and interest in exchange for slightly larger monthly payments, and businesses would usually prefer to reduce your balance this way rather than instigate expensive cost collection proceedings. It’s not guaranteed that you will be successful, of course, but many people find that this approach works—it’s definitely worth a shot.
It may also be worth telling the banks that you are considering selling a property or refinancing it as part of a property settlement. Banks can make a note of this and it can take the pressure off if they know funds will soon be made available to pay off a card in full.
Use your assets
This is the least attractive option, but is at least it is an option, if you acquire assets (house, car, property with equity, etc) during your divorce. The trade is survival over comfort—alas, difficult times call for drastic measures. And remember—stuff is just stuff, no matter how emotionally attached we are to it. Sometimes, letting go will both lift your financial burden and emotionally free you to move on without constant reminders of your past.
Speak to your family lawyer about this before you take drastic steps. Sometimes it is inevitable to sell assets, at other times you may be able to hold them but leave the debt with your Ex.
For an appointment with either our accredited specialist family lawyer Cristina Huesch, or one of our other qualified lawyers Sharla Stevens or Angela Li, please do not hesitate to call us on 6223 2400.