Going through a divorce can feel incredibly draining: emotionally, psychologically, and—of course—financially. While emotional healing can be a long, winding road, one objective way to start fresh is to work towards eliminating your financial debts as soon as possible. Clearing your debts can serve as a powerful method of beginning a new chapter of your life, signaling to your subconscious and the world that you are capable of making positive, impactful changes in your own life. In order to tackle your debt, you must have a proper plan and thorough knowledge about the best ways to get rid of your divorce debt. To help, we are sharing the top 6 ways to be debt-free after divorce.
Reducing Your Debt
As per the Centers for Disease Control Prevention (CDC), the divorce rate is around 2.7 per 1,000 people in 45 reporting states, including the DC. The majority of the couples going through a divorce can find it challenging to deal with the debt situation. Nevertheless, you can use these methods to reduce your debt and soon eliminate it.
1. Consolidate your Debt
The first thing you need to do is consolidate your debt to bring down your interest payments. For example, women often put the fees involving their divorce process on their credit cards because they don’t have direct access to funds. As a result, they end up paying high interest on those cards. Therefore, the first thing that you need to do is clear all those high-interest loans.
2. Negotiate with Creditors
The next thing you need to do is negotiate to bring down your debt or interest rate. If you have a good payment history and a good reputation among the creditors, they will be more than willing to facilitate you in your hard times.
You can always negotiate with your lenders to bring down the interest rates if you have a good credit score and history. As a result, you can save the money you pay in interest and bring down your debt.
Let’s say you owe back tax taxes to the IRS. Contact the IRS and ask to be put on a payment plan which will reduce the interest you would normally pay had you not asked to be put on a payment plan.
3. Divide your Loan
Once you end your marriage, (even before it’s officially recognized by the divorce document) it is imperative to take responsibility for the monies or loans you are liable for.
If your spouse or Soon-to-be-Ex spouse does not make the payments on time, you will be held responsible. You will share the blame for it even if you share no responsibility in your divorce contract. This can significantly impact your credit score and history.
As an independent woman, you need to develop your credit history for the future. Therefore, if you have any joint loans with your Ex, you should refinance them. This alone is a good reason to consult with a financial person once you know you will divorce.
Paying Off Your Debt
Now that you are able to bring down your debt, it is time to pay it off. To avoid hassles, the right strategy is vital. If you throw all your savings into clearing out the loans, it could result in other financial problems. So instead, here are a few ways you can plan to fully eliminate your loans.
4. Increase your Sources of Income
When it comes to debt elimination, increasing your income is imperative. You can use the extra money in hand to chip away at your debt and get rid of the financial burden. Although it won’t be easy, it is best to eliminate your debt.
You can look for part-time opportunities that you can take up after your job. These part-time opportunities are often called side-hustles. Maybe you have a particular talent or passion that could complement your full-time job—like tutoring others in a foreign language, or designing flower arrangements for parties, or creating website designs? You could also ask your current employer to increase your salary or look for a job with a higher salary.
In a nutshell, your strategy needs to be about increasing your income. And the good news is that divorce is often a catalyst for getting creative and practical with your life. It can inspire your ambition to find more challenging things to do and to be compensated for it.
5. Look for Ways to Get More Cash
Apart from getting another job, you can also look for ways to increase the cash in hand. For instance, you can always throw a garage sale and sell items that you do not need. What about your luxury items that may be sitting on your shelf… or parked in that same garage? Anything from watches and jewelry (wedding rings?) to handbags or vehicles. There’s often a market for your unused items and a consignment or specialty platform like eBay or Poshmark that specializes in selling these things. Investigate your options and purge your possessions wherever possible.
6. Cash in your Life Insurance
Another way to pay off your debt is by cashing your life insurance. It can help you get the number of funds you need to clear off your debt. The best part is, even if you have beneficiaries, you can take a small amount out of the policy and leave the rest of the proceeds for the people you care about.
Before you cash out your life insurance policy, however, make sure you investigate the fees you may pay for doing so. There will be charges.
The Most Important Takeaway…
Going through a divorce and dealing with your debt situation can be difficult, and even terrifying. The massive transition from your old life to your new one will likely take some time to get used to. But the goal of getting rid of all your debt needs to be on the top of your list.
Freeing yourself from debt means no longer having to pay a huge interest fee each month. With that monkey off your back, you will feel not only financially relieved but emotionally liberated.
To summarize, remember: you should plan to consolidate your debt to get a lower interest rate and then increase your income to pay off the debt quickly.
To learn how your debt might be consolidated and what steps you can take to move forward feeling more financially free, you are invited to schedule a free consultation with Lyle Solomon, the author of this article and a principal attorney for the Oak View Law Group in California. Lyle graduated from the University of the Pacific’s McGeorge School of Law in Sacramento and is a specialist helping people rid themselves of debt.
Since 2012, SAS for Women is entirely dedicated to the unexpected challenges women face while considering a divorce and navigating the divorce experience and its confusing afterward. SAS offers women six FREE months of email coaching, action plans, checklists and support strategies for you, and your future. Join our tribe and stay connected.