Financial Recovery & Divorce
- You may have limped away from the equitable distribution or community property portion of your case with a boatload of debt in tow, some of which might not even be in your name. If somebody missed a few payments in all of the hullabaloo of your divorce, some of these debts may be running at a default interest rate of 26 percent or more. This debt load is a leech on the skin of your financial existence; get rid of it. Take any extra money you can squeeze out of your budget and kill the lowest, most easily satisfied debts first, then apply the monthly payment on the vanquished debt to the next lowest debt, and so on. This is called "the snowball method."
- Depending upon the makeup of your marital estate, your ex might have taken a bite out of your retirement. While this may delay your retirement plans, it isn't necessarily fatal. Once you get rid of your high-interest debt, you will find yourself with extra income that you once used to pay on your debts. When the debt is gone, don't go out and spend the money or get a bigger apartment; dump in into your retirement until you're back on track. Depending upon the retirement vehicle you and your adviser have selected, you may even get some tax benefits out of this.
- Missed payments, repossession and foreclosure are all common side effects of a divorce. Even if you managed to hang on to your house or car, your credit might be in shambles. You will find, though, that as you pay down and eventually pay off your debt, your credit score goes up. Furthermore, many of the black marks that show up on your credit due to divorce were aberrations caused by the financial trauma of your breakup, not any financial irresponsibility on your part. Use credit responsibly and these black marks will fade with the passage of time.
- Your standard of living took a big hit when you and your spouse split, and you may have to deal with child support or alimony in addition to debt. Keep in mind that all child support and most alimony are temporary; you won't be paying it forever. Subtract these payments from your income and think of yourself not as a person who earns $50,000 a year, but $36,000 or $40,000. Stay away from expensive apartments and high car payments, and learn the art of living on a budget. Realize that as a single person, you aren't just responsible for your own finances; for the first time in years, you can be in control of them, too.
