When Sheila Ferguson divorced years ago, she started over again with a young child and not much to her name. Like many parents dealing with divorce and credit cards, she lived paycheck to paycheck and charged some of her living expenses. “I had enough in savings to pay off the balances,” she says, “but I was afraid to use it. After two years, I still owed over $785 of the original $1,000 and I had paid over $320 in interest. It would take me another 10 years to pay my card off and cost an additional $790 in interest!” She also took unnecessary risks with her credit by leaving the mortgage and other bills in both her name and her ex’s, and she admits it took her much longer than it should have to get back on track.
Now remarried and the CEO of an online service, Sheila warns others about making the same mistakes she did. “Divorce is hard enough without the financial issues that can last for years,” she says.
Divorce and Credit Cards: How do I protect my finances?
Here are tips for protecting your credit and cash before, during and after divorce.
Monitor and Close Joint Accounts
Even if your divorce decree assigns joint debts to your spouse, you will be responsible as far as the lender is concerned until they are paid off and closed, or refinanced solely in your ex’s name. Before you divorce, make sure you monitor joint accounts to see if your spouse is racking up new charges that you may end up responsible for paying. During and after your divorce, monitor any remaining joint accounts to make sure they are paid on time.
Protect Your Identity
If your ex is vindictive or desperate, your personal information may be at risk. It may be used to open credit cards, drain bank accounts, or even buy a home without your knowledge! There are several ways to protect yourself:
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- If your ex is vindictive or desperate, your personal information may be at risk. It may be used to open credit cards, drain bank accounts, or even buy a home without your knowledge! There are several ways to protect yourself:
- Monitor your credit report on a regular basis to detect changes like inquiries from companies you don’t recognize, or new accounts you did not authorize.
- Receive and pay your bills online, and check them frequently. Research published by the Better Business Bureau has found that consumers who are monitoring their accounts online experience losses one-eighth of those who rely on paper statements.
- Set up alerts to notify you on your cell phone or by email if there is unusual activity on your accounts, such as large charges or unexpected withdrawals.
- Make sure you have identity theft insurance to help pay for expenses and provide guidance if you do become a victim.Warning! Some jurisdictions around the country put public records, including divorce papers, on the Internet, for anyone anywhere in the world to access. Check with your county clerk and/or secretary of state office to find out whether yours are online, and if so, find out what you can do to have them suppressed or removed.Some jurisdictions around the country put public records, including divorce papers, on the Internet, for anyone anywhere in the world to access. Check with your county clerk and/or secretary of state office to find out whether yours are online, and if so, find out what you can do to have them suppressed or removed.
Stay On Top Of Your Finances
Make sure you are getting all your monthly statements and paying your bills on time. One late payment on a credit card can mean a late fee of $39. Worse, it can trigger a significant increase in your interest rate. Today, the average “default rate” you will be charged if you are late with a payment, or if anything negative appears on your credit report, is over 22%. Some issuers charge as much as 35%! It is a good idea to review your accounts online, and even to pay them online, so you do not have to worry about whether your mail will be delivered on time.
Deal With Your Debt
Paying debt without a clear plan is stressful and frustrating. Creating a realistic plan to pay off your debt will save you money and help you sleep better at night. Procrastinating on this point will likely cost you hundreds, if not thousands, of dollars in wasted interest charges as you muddle through. Paying debt without a clear plan is stressful and frustrating. Creating a realistic plan to pay off your debt will save you money and help you sleep better at night. Procrastinating on this point will likely cost you hundreds, if not thousands, of dollars in wasted interest charges as you muddle through.
There is a mathematically optimal way to pay your debts off in the fastest, least expensive way. But most people do not take advantage of it. Why? Because they don’t have a clear organized plan that shows them how to do it! Instead they let emotions rule how they will handle their finances, and as a result, overpay. If you have multiple debts that you are trying to pay off, make sure you have a month-by-month plan for retiring them as fast as you can, so you can start investing that money to build wealth. An added bonus: As your balances go down, your credit score will likely improve and you’ll be in an even better position to get the best rates!
Boost Your Credit
If you shared most of your accounts with your ex, or if you did not have many accounts in your own name, you must establish credit on your own. The sooner you get started the better, since your credit rating will affect not only what you pay when you borrow, but also likely will help determine what you pay when your auto or homeowner’s insurance comes up for renewal, or whether you will get the cell phone, apartment or job you want.If you shared most of your accounts with your ex, or if you did not have many accounts in your own name, you must establish credit on your own. The sooner you get started the better, since your credit rating will affect not only what you pay when you borrow, but also likely will help determine what you pay when your auto or homeowner’s insurance comes up for renewal, or whether you will get the cell phone, apartment or job you want.
Even if you did not share a lot of accounts with your ex, you may find your credit damaged after your divorce. The time you invest in strengthening it, however, will pay off. Consumer Federation of America and Providian reports that if all consumers raised their credit scores by 30 points, total consumer savings would equal $16.4 billion.
Take It Easy
While you probably know you “should” be doing with our finances, the reality is our lives are chaotic—especially during and after divorce. So make it easy on yourself. Today there are numerous tools and resources online that can help you automate many tedious tasks, like disputing credit report mistakes, paying bills, and monitoring your credit and accounts for fraud. Focus on the high-impact activities described here, and then reward yourself (inexpensively!) for a job well done.
Gerri Detweiler is credit expert for Everyday Wealth, an affordable online service that can help you monitor and build strong credit, pay off debt faster and protect yourself from identity theft. She is also author of The Ultimate Credit Handbook and host of an Internet radio program, EverydayWealth Radio: Your Consumer Advocate.
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