Divorce marks the beginning of a new chapter, an era where most people make impactful changes and adjustments to their lives. For some, these changes could look like a move away from their hometown, whereas, for others, it’s as simple as breaking away from debt. Dealing with debt after divorce isn’t unheard of; in fact, most divorcees credit this financial snag to divorce. Ahead, we look into some commonly quoted causes for post-divorce debt.
5 Common Causes Of Post-divorce Debt
Admittedly, there is no general cause for debt after a divorce, as the reasons tend to vary based on a person’s unique situation, lifestyle, responsibilities, and finances. Nevertheless, several popular driving factors send divorcees into a debt spiral; ahead, we cover five of them.
1. Reduced Household Income
A split from your partner typically means your expenses are your sole responsibility. That, coupled with the consequential halving of your household income, makes maneuvering the day-to-day expenses challenging. With such a tight stretch on money, many will look to creditors for the easy way out.
2. Cost Of Divorce
Divorces are generally expensive; between the lawyers’ fees, alimony, child support, and property division, most couples are left barely holding on. Not to mention the soft costs divorcees have to foot for to make the transition- moving, new phone plans, changing insurance, et cetera, which tend to cost a good chunk forcing most people to turn to credit as a quick fix.
3. Mortgages
Naturally, most married couples share a mortgage throughout their union. Unfortunately, if the spouses choose to divorce before paying off their mortgage, the property becomes a cause for debt. With their incomes and expenses halved, meeting the monthly mortgage payments becomes frustrating, which could force them to take out a second loan to save their investment, further driving them into debt.
4. Child Maintenance
From education to medical bills and food expenses divorcing parents carry significant weight regarding their children’s care and support, from education to medical bills and food expenses. An average parent spends about $17,375 yearly on raising a single child; for a parent who’s still trying to figure out their income post-divorce, this amount is costly and without the right counsel and budgeting, spiraling into debt becomes a slippery slope.
5. Car Loans
It’s common for couples to take out car loans during the marriage, which is a good investment; it could become a financial pain post-divorce. Divorcees that are yet to complete their car payments can easily find themselves in debt when the liability of the loan payments solely falls on them and puts their finances under strain.
5 Strategies To Get You Out Of Debt After A Divorce
Handling debt after a divorce is intimidating; between the strained finances, lifestyle adjustment, and halved responsibilities, most people barely manage to stay afloat.
1. Consolidate Your Debt
Like any other debt, post-divorce debt can be rid of through consolidation. Taking out a single loan to clear out the rest is often advocated for divorcees, especially when dealing with high-interest loans and personal credit. How does this work? By rolling all your credit card bills and loan payments into a single debt obligation, you can refinance for a new substantial loan with lower interest rates. Not only will this approach give you some time to get together, but it’ll also shake steep interest rates off your back.
2. Sell An Asset
3. Negotiate With Creditors
If you find yourself owing more than you can pay after a divorce, it is advisable to let go of an asset; this could be anything, from your vacation home to your second car or your engagement ring. Now is the time to turn to your valuables for a way out of debt, and if you can’t think of a possession that would raise you some good money, you could consider having a yard/garage sale for those items you no longer use, this should give you that extra cash in hand.
Along with consolidation, one can negotiate with creditors to reduce their debt or interest rates. Divorcees with impeccable debt payment history and credit scores can use that leverage to negotiate with lenders to shave some money off their loans. If the lender is willing to facilitate this request, you could ask them to put you on a payment plan, so you never miss those deadlines. Hiring a professional to do the talking for borrowers who lack negotiation skills will come in extra handy.
4. Divvy Up The Loans
Divorcees with joint debts like mortgages, car loans, and credit card debts can split the financial burden. Talk to your ex-spouse about the debt and devise an efficient strategy for paying off the debts; this could mean alternating payments between the two of you or fairly dividing the loan burden. Whichever the case, agreeing to halve that loan burden could save both of you the financial frustration and help keep your credit score and history in check.
5. Diversify Income Sources
Another way to chip away at your debt is by increasing your sources of income. You can do this by tapping into your creative muscle and passion for drawing a side hustle for that extra cash; alternatively, one can pick up a part-time job that complements your full-time career; this way, the integration won’t feel as overwhelming. With that extra money coming in every month, the financial burden of clearing your debt is balanced out, setting you straight for a debt-free divorce.
6. Cash In Life Insurance
Lastly, consider cashing in your life insurance to eliminate your debt. While this isn’t the typical go-to strategy for debt elimination, it is a viable approach. Divorcees with life insurance can turn to their covers (if policy permits) for some aid with their debt; however, one has to remember that this strategy comes with a charged fee. Before cashing in, ensure that you are fully aware of the company’s life insurance policy as well as the fee charge so you can make an informed decision. What if the funds set in your life cover surpass your debt? You can always save the leftover cash for rainy days or leave the proceeds to your beneficiaries and those you care about.
Final Take
Dealing with debt after a divorce can be overwhelming; the transition is intimidating, let alone the fiscal adjustment that comes with it. Although truth be told, divorces can signal a life-changing turning point even when you’re wading your way out of a pile of debt, all it would take for you to turn the wheel in your favor I’d a subconscious note to actively work towards eliminating those debts and the implementing of these impactful strategies in your day to day life. Seize the moment as an opportunity to start over new and set your life on a healthy and smart financial path.