Debt and Credit Recovery After Divorce
Disclaimer: The materials and content within this podcast are intended as general information only and are not to be considered a substitute for professional legal advice or a consultation with a lawyer.
1. Family Law Tip of the Week
If you are in the middle of a divorce or your divorce has been finalized, remember to consult with an estate planning attorney about updating your will and/or trust. The failure to do so could cause many problems for you and your family down the road!
2. Debt and Credit Recovery After Divorce
Valerie Rind is the author of Gold Diggers and Deadbeat Dads, the blog, and soon-to-be book. In the past, Valerie was a certified credit counselor and worked for the housing authority to help low-income individuals learn about budgeting and credit. Valerie’s work in this area took place during a hiatus from practicing law.
Valerie was inspired to work in this area after an experience with her now-ex husband that involved her loaning him money (which ultimately financially devastated her). Valerie knew she was not the only person whom this had happened to, so she decided to learn more about personal finance, credit and budgeting. She wanted to do something to make a difference in peoples’ lives so they could know they aren’t alone and so they could prevent major financial mistakes in the future.
The Money Talk
Individuals who are in committed relationships should have the “money talk.” Admittedly, this topic can be a hard one to address. A lot of your beliefs about money come from the way you were raised, and you take these beliefs with you into your romantic relationships. It is best to start somewhere with your partner, rather than not address these issues at all.
Steps to Take When it Comes to Debt and Divorce
Arizona is a community property state. What this means is that debt acquired during marriage (as long as that debt was acquired for a community purpose) shall be divided equitably. This can be a problem in the case where one spouse has accumulated massive debt without the other person’s knowledge.
The first step is finding out the extent of the debt. The best way to do this is by ordering a credit report. Once you have the credit report in hand, obtain the account statements from the various companies to get interest rates, repayment terms, and to find out exactly what the debt was acquired for. Once you have accumulated this information, consider putting together a chart so you can see everything at a glance.
Repayment of Debt, Interest Rates and Balance Transfers
With respect to debt that has higher interest rates, there are two schools of thought:
The first school of thought says you should pay off the debts with the highest interest rates first (even though they might not have the highest balance). The other school of thought is that you should pay off the smallest balance first (regardless of the interest rate), which leads to a feeling of accomplishment.
Ultimately, the decision depends on you.
Practically speaking, when dividing credit cards with your soon-to-be-ex, keep in mind that despite your settlement agreement (that is court-approved), the creditor still could potentially pursue you in the event your ex has not paid what s/he was ordered to pay. To avoid this scenario, consider transferring the balance to a totally new credit card (and close the old credit card account). This is not a perfect solution, depending on your ability to get another card and willingness to pay the balance transfer fees.
If you aren’t able to make complete payments on various debts, pick up the phone and ask whether the credit card or loan company will work with you. If they won’t, Valerie recommends paying something towards everything. That way, you won’t allow things to continue in default. The single most important thing you can do for rebuilding your credit is paying your bills on time (even if you are only paying the minimum balances).
So what does paying “on time” mean? In Valerie’s view, the due date is the due date. She would not recommend missing around with that date, although there might be a grace period. When in doubt, pick up the phone and call the credit card company about grace periods!
As regards debt consolidation, whether or not it is a good idea depends on your individual situation. Pay attention to the interest rates that you will be paying, as well as the fee you will have to pay for the consolidation. Beware of the late-night commercials in which a company is going to fix all your problems, too!
In terms of repairing credit after divorce, know what debt you will be responsible for post-divorce, as well as what the other person will be responsible for post-divorce. The most important factor, however, is to pay on time. Don’t run out and obtain a bunch of new credit, although you may have to purchase some things post-divorce (like a new car, for example).
The “B” Word – Budgets
On the topic of budgets (the “B” word)…nobody ever gets too excited by them. They don’t work if you are going to feel enslaved and trapped by them. The value of a budget is so you are not in the dark about your money. Additionally, it will help you in setting aside money to save for something “special” you want to do (as an incentive).
Also…before hitting the panic button and filing for bankruptcy, meet with an attorney.
If you want to reach out to Valerie or read her blog, find her at valerierind.com. Also keep an eye out for Valerie’s upcoming book, Gold Diggers and Deadbeat Dads, coming soon!
3. The Family Law News
Today, Matt talks with us about the fact that the creators of the “How I Met Your Mother Spinoff” have recently hired Meg Ryan to provide the voice of the narrator.