How to Get Your Finances Back on Track After a Divorce
Divorcing your spouse is a difficult experience, and typically somewhat traumatic. Things can be even worse if money problems were a big cause of your divorce. Along with your emotional pain, you have to deal with the financial repercussions of your marriage ending as well. Admittedly, it may not be easy, but you can get control of your finances again and move on with your life. The trick is to deal with one situation at a time and realize that starting a new life means making some major changes.
The One Income Problem
The sharpest financial blow is that you become your sole means of income. Even worse, if your ex was the family breadwinner, you may have to trouble just taking care of your basic necessities with your sole income. Unfortunately, the only way to deal with this is by creating a tight budget and sticking to it. Since your means have changed, you have to adjust your spending habits to live within your new means. Additionally, if you have lingering debt or other problems to clean up following your divorce, you’ll have to be that much stricter when creating your budget.
It is important to remember that child support is not permanent income. And, if your ex is struggling financially too, it may not even be temporarily reliable income if he or she can’t make the payments or the court orders minimal payments. In the case of child support, you should reserve the money to pay for your child or children’s expenses and not count it as part of your personal budget. Don’t base your lifestyle, and your budget, on that income continuing to come in, otherwise when it doesn’t you could wind up facing even worse financial difficulties.
If you have an overwhelming amount of debt left over from your marriage, then you may want to consider credit counseling. Getting credit counseling will help you figure out a way to tighten up your budget to pay off your debts, or whether you need more extensive help such as a debt consolidation loan, or debt settlement, in which a third party company negotiates with your creditors to settle the accounts for a less than you owe. A debt consolidation loan will do less damage to your credit, but if you are deeply in debt it may not be an option.
If credit counseling doesn’t work, then filing for bankruptcy may be an option. However, you need to receive credit counseling from an approved agency before you can file for bankruptcy. You should also know that there are two different types of bankruptcies, Chapter 7 and Chapter 13. Chapter 7 Bankruptcy will eliminate most of your debts, while Chapter 13 only makes provisions for you to pay them off, although it may reduce the amount of money that you owe. In either case, remember that bankruptcy will not eliminate Federal student loan debts.
If you have an upside-down car loan, you may have no choice to keep making the payments. On the other hand, if you’ve paid off a sizable portion of the loan, you might want to consider downsizing your car and getting a less expensive model in order to reduce your costs of ownership. For example, you might want to get rid of your gas-guzzling SUV and get a compact car. Not only can you potentially reduce your loan payments, but you will save on commuting costs as well. As hard as it might be to admit, a more economical car may become a necessity.
While it may not be the first thing on your mind after a divorce, many people inevitably do start dating again at some point. The problem with this is that if you’re on a tight budget, this can lead to expensive nights out that you may not be able to afford. Keep your income limitations in mind and remember that it is perfectly understandable in this day and age for both parties to split the tab on dates. Additionally, if you someone you’re interested in suggests something that you can’t afford, don’t be afraid to be honest about your financial situation. Most people will understand.
If neither you nor your ex can afford to keep your home, then you have several options. The first is to try and sell it. However, if you are already behind in your mortgage payments or have very little equity, then you might not be able to sell it for enough to repay the mortgage loan. In either of those cases, you should contact your mortgage lender and find out what your options are. Believe it or not, foreclosure is not your only option. Your lender may be able to arrange for a Deed in Lieu of Foreclosure, or arrange a short sale, both of which are better than foreclosure.
Avoid Grief Spending
Money can’t buy happiness and running up your credit card bills in order to get over the pain you feel over your divorce isn’t going to make you happy in the long run. Sure, a good shopping spree might make you feel better for an hour or two, but you’ll regret it when the bills come in. The same goes for trying to ease your loneliness by spending a lot of expensive nights out with friends. If you can afford it within your budget, that’s one thing, but if you’re trying to cut back on your spending then painting the town red will put your finances in the red as well.
Dealing with your financial situation after your divorce may not be your initial priority, but it will become a mandatory priority at some point. Many couples who split up over money problems typically aren’t able to come to adequate terms on how to fairly split up their assets and liabilities. And, if most of the bills were in your name, then your spouse may not have to pay anything at all. Don’t wait until you bill collectors have you ready to scream; take control of your finances so that you can move on with your life.
About the Author: Tony Standin is a personal financial specialist who knows what it’s like to have to bounce back after a divorce. His goal is to help others learn how to get back on their feet so they can live independent and strong financial lives.