Divorce & Credit: Here’s What You Need to Know

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Divorce is always an unpleasant subject to broach, but it is important to understand all of the ways that divorce will affect your life moving forward. When going through divorce proceedings, finances are always discussed, but individuals may forget to take their credit into account.

The important thing to note is that a divorce filing will not directly affect your credit score. However, it is possible for a divorce to indirectly impact your credit score. There are a few things you need to keep your eye out for.


Make Sure Your Spouse Pays Joint Debts

It’s likely that during the course of your marriage, you created joint accounts with your ex-spouse. The most common joint debt are mortgages and credit cards. Once you receive your divorce decree, you’ll know exactly what your spouse is responsible for paying. It is likely that the ruling will require your ex spouse to take over entire payments for debts that your name will still be on. It will be on you to make sure that the debts that are actually being paid. No matter who is supposed to be making the payments, a missed payment on any account that is attached to your name will have a direct hit on your credit score.

In a best case scenario, the relationship between you and your ex will be amicable enough to ensure that you don’t have to worry about (intentional) missed payments. However, if that is not the case, you should take on the responsibility of the payments in order to save your own credit.


Watch Out For Your Credit Accounts

In the unfortunate scenario that the relationship with your ex-spouse it not a healthy one, you should be actively watching any joint credit accounts that exist between the two of you. If your ex was an authorized user on any of the credit cards that you share, they can quite literally rack up all of your credit cards without any legal repercussions. This would be self-sabotage on their end, but it would hurt your credit score all the same.


There is not much that can be done to remove each other from accounts that were open together. But, remove your ex spouse from any individual accounts that you have where they were added on as an authorized user as soon as possible.

For more information, see the following resources: NerdWallet & Experian.


Tips to Prevent Bankruptcy – Part 2


In this blog post, I started to address a few of the ways that an individual can avoid having to file for bankruptcy. Bankruptcy should truly be viewed as a last resort; the long term consequences of filing for bankruptcy can be paralyzing. In this blog post, I will cover a few more basic tips to keep your finances healthy, and avoid traveling down the (usually avoidable) path to bankruptcy.


Start an Emergency Fund

While this may not be possible if you are already deeply in debt, it is a great preventative measure. This emergency fund should be several months worth of salary that you save over time. In the event that a person disaster takes place (loss of a job or medical emergency), you will be able to continue to function financially for a few months and avoid immediate thoughts of bankruptcy.


Work To Rid Yourself of High Interest/Unsecured Debt

If a majority of your debt is on credit cards, it is likely that a large portion of the money you owe carries a very high interest rate, and is what we call unsecured debt. (Unsecured debt is debt that does not pertain to an asset or specific property – ie: a car, house, etc.) If possible, refinance your secured debt to rid yourself of the unsecured debt. Work with your lenders to refinance your mortgage and get a cash out to pay off the unsecured, volatile debt. The refinancing will allow you to take on debt at a lower, more manageable interest rate.


Maximize Your Income

If you have already worked to minimize your spending across the board, and it is not feeling like it is manageable, it may be time to take on a second job. If you have a capable spouse who is currently not working, they should also begin to seek employment. Any increased income that can be had will help make your situation a little better.

The reality is that the process of preventing bankruptcy is never an easy one, unfortunately you may be looking at making a lot of decisions that do not align with your current lifestyle. But, if you are actively thinking about bankruptcy, that does mean that your finances are in trouble, and a personal sacrifices now will ultimately make your life easier down the road.


For more resources, see these articles: Investopedia, Quciken, USNews