Like many women today, I once found myself in a position of having to consider bankruptcy. For me, divorce was not the culprit; it was just plain mismanagement of credit due to ignorance of how the credit system worked.
However, divorce often is the trigger of a money meltdown for women (along with health issues or loss of a job). If you find yourself dealing with seemingly insurmountable debt after going through a divorce — a reality that can be just as scary as debt — there is hope, and bankruptcy isn't necessarily your best option.
Consider these 3 ways to deal with post-divorce debt and remove the fear and sting from the other d-word caused by your change in martial status:
Apply for a Home Equity Loan. This particular option requires you have good credit (a credit score of 650 or more) and equity in your home. Due to the current mortgage crisis and the tightening of the belts at the banks, this option is quickly becoming more difficult for many people, particularly newly divorced women.
However, it is not completely off the table as a possibility, so contact your mortgage company for more details about what is required for you to apply for a home equity loan or even a refinance of your existing loan (which could mean you're lowering your monthly payments and paying less interest on what is probably your biggest expense).
Debt Consolidation. Contacting a debt consolidation company is another option you might want to consider if you owe multiple creditors and the process of paying different amounts at different times is overwhelming. Debt consolidation is actually a loan based on the amount of debt you have; it will take into consideration all of your outstanding debt, current interest payments and your ability to repay one lower payment each month. If the loan is approved, it will be paid directly to the accounts listed on the loan application. Additionally, there are debt minimums you must meet before you qualify for this type of loan. If you have a very low amount of debt (under $10,000) then you may not qualify.
A condition of the loan may be for you to close the accounts which have been paid in full. This could lower your credit score because you are closing existing credit accounts, however the benefit is you are only paying one creditor and greatly reducing the amount you will pay back over time.
One of the biggest risks with debt consolidation is that if you do not close or suspend use of the paid accounts, you could run the balances back up again, and then you will owe double what you owed previously.
Credit Counseling. This is one of the best options and will be particularly helpful if you do not qualify for a home equity or debt consolidation loan. Credit counseling will help you by decreasing your monthly payments because the counselors work on your behalf to make payment arrangements with your existing creditors. In many cases, counseling services can also help eliminate late payment fees as well as reduce interest rates.
One major condition of your credit counseling agreement is you will not be allowed to use any credit cards you have, so basically your credit is on hold. And like with debt consolidation loans, using a credit counseling service might negatively impact your credit score. However, it will not affect it any worse than not using the service or continuing to make late payments.
On a more positive note, a built-in component of using credit counseling services is creating a budget (which they provide a template for) and learning money/credit management skills that will help you avoid getting in over your head in the future.
If working with a credit counselor seems like an option you want to pursue, you can contact the National Foundation for Consumer Credit, which has a network of over 1,400 "Financial Care Centers" designed to help with debt management and repayment, bill payment, credit crisis resolution, counseling, and financial education. For more information, call (301) 589-5600, or visit www.nfcc.org
Evaluate which one of these three post divorce debt options will best help you find your financial feet again. Once you have reviewed the three options, begin to research companies that can provide the answers you need to pay off and managing your debt.
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