4 Ways To Get Rid of Debt During Divorce
Over the years in a marriage, we accumulate a lot of “stuff.” Some useful, some not. Which is why, in the moving-out stage of divorce, you see a lot of people having garage sales and selling things on Craigslist. Why? Because they are forced to go through the material things that made up their life and decide what is critical. What do you hold onto and what do you let go of?
Unfortunately, when it comes to debt during divorce, the answer is not so simple. Perhaps you and your spouse agreed to split the debt you acquired in your marriage, or perhaps it’s the cost of paying the attorney or mediator that’s weighing you down. Whatever the cause of your debt, there are four really smart ways to deal with it to put you back in the black.
1. Consolidate
When my girlfriend Kate got a divorce, she took the majority of the credit card debt from the marriage and her ex-husband took the “toy” debt (the boat, the motor home, etc.). Each month, her minimum payments on those twelve separate cards totaled nearly $2,000 and Kate realized she was going to sink fast unless she made a plan to deal with her debt. Because she was newly divorced, the reality was that none of the banks or credit unions would give her an unsecured loan large enough to transfer all the balances. But one night, sorting through her shoe-box full of bills (assisted by a half bottle of Merlot), Kate had a few ideas on how she could manage that debt and pay it off for good.
Kate’s mother was a retiree with good credit and no debt. She swallowed her pride and asked her mom to sign for a loan that would allow her to pay off the debt, lower the monthly payment with an interest rate that would mean her money was going to pay off principle every month, and not pad the bank’s wallet. Her mother agreed, and Kate got the loan. It took her four years of diligently paying it off, but she did it without going under.
I‘m going to put a caveat here, because if you do have parents or a relative gracious enough to do this for you, don’t repay them by making late payments, skipping payments and putting their credit rating in jeopardy. If someone loves you enough to help you in this way, repay them by being worthy of their trust.
2. Eliminate
When I was in college, I got my first credit card, followed by three more. Yes, it was in college that I discovered that credit cards are like rabbits; they like to multiply. And, before I knew it, each of them had a balance that was quickly spiraling out of control. Now, it didn’t help that I continued to use these cards. Yes, admittedly, that may have been a contributing factor.
I kept paying each month but the balances weren’t going down. I lamented this issue with my father one night when he told me the secret to paying off debt is two-fold. One, you must prioritize the bills by balance; lowest is first, largest is last. Secondly, you must actually stop using the cards. (Noteably, I was less happy about the second prong of this plan than the first.) I put my bills in order, from smallest balance to highest and did what he advised; paid the largest payment I could afford on the smallest bill and made only minimum payments on the others. Once the smallest was paid off, I used that money to add to the payment I was making on the next bill in line, and so forth until all of those little credit cards were paid off. I’m not going to tell you it was fun or easy. But I can tell you that I had a little card-cutting ceremony beforehand that was very emotional for me at the time. And, needless to say, they all got paid off.
3. Negotiate
When my friend Barb divorced, she got sick a few months later. She discovered a tumor in her jawbone that – several surgeries later – racked up nearly $30,000 in debt. The oral surgeon’s office was charging her interest for each month that the bill wasn’t getting paid in full, and a $40 balance carried fee. You can imagine how quickly that balance was going down. One night, while visiting her as she recovered from her last surgery, I listened as she complained that, at this rate, she was never going to pay off her medical debt.
I told her to contact the oral surgeon’s office the next morning. After fully explaining the situation to their billing department, she negotiated a compromise; they would reduce the balance owed to $15,000 and eliminate the fees and interest in exchange for Barb making slightly larger monthly payments until the balance could be paid off. Many companies understand the plight of people in crisis. I’m not saying every company will agree to reduce your bill, but many companies would rather reduce your balance than have to go through costly collection proceedings where they stand to recover even less. As I’ve found in many places and situations, nearly anything is negotiable.
4. Use your assets
This is last because it’s my least favorite, but it does work. If you are lucky enough to have assets when you divorce; a house, a car or even property with equity, then this last solution may be for you. If you have equity in an asset; be it a car, ring, house etc. then chances are you can use it to eliminate some of your debt. If you have an asset that is a “toy” – and by this I mean a boat, a motor home, a dirt bike or jewelry – then you have the means to use that asset to ease your burden.
Oh, I know, this one stings a little. When I divorced my husband, I sold my wedding ring to pay for our move. Difficult times call for drastic measures, so it’s time we get down and dirty and think about survival over comfort. If you have Aunt Libby’s china, it will do you no good if you’re living under the Santa Monica Bridge, now will it? This is a last resort because, really, when we divorce it feels like we have so much taken from us already that it feels as though one more thing may do us in. When you’re in that spot, I want you to repeat after me; it’s just stuff.
With these four strategies, you will have all the tools you need to be back in the black in no time. Good luck, honey. It’ll all work out in the end.
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