After divorce, financial resources are decreased, due to which it is essential to carry out thorough financial planning to devise strategy for encountering the debt crisis. Find out your debt relief options after divorce.
Most of us are generally in the habit of spending more than the income, due to which problems of debt occur. With the decrease in income, deliberate budgeting would be necessary. Measures required in this regard will depend upon the individual circumstances, but in general practical application of the desired actions would be necessary.
Wipe our Debt (Photo credit: Images_of_Money)
Reducing Debt After Divorce
The following are debt reduction options after divorce:
- Track Expenditures
- Discuss With Creditors.
Explain the financial difficulties to the creditors and convince them to reduce interest rates, withdraw late fees or any other possible assistance. If creditors feel that bankruptcy will occur they may be inclined to offer assistance. You may also like to approach credit counseling agencies that make efforts to obtain lowering of interest rates and reduction in payments due to creditors. Also see if the lender is involved with Hope for Homeowners, a government sponsored program for the benefit of borrowers, who cannot make payments. Refinance of mortgages will be possible, and a new loan could be arranged.
- Obtain Useful Debt
Whenever income is reduced the first natural action should be identification and review of expenditures that should be commensurate with the income. Tools such as Budget Planner, MS Money and Crown Financial may be helpful. Excessive spending should be eliminated, though it may be difficult since it is has become a natural habit. Some of the examples may be cable TV, smaller house and eating out. Lot of money could be saved by elimination of such spending.
Debt may not always create financial problems, and can be beneficial if utilized prudently for the future. Debt obtained for pursuing higher studies e.g Master’s degree may be advantageous since the higher studies will be an asset that will be a continuous source of income in the future life. Debt can also be considered as an investment if used to purchase a house, or any other such asset, that is more likely to appreciate in price with time. However, even if the debt is considered to be useful, it should not be taken excessively since it is more likely to become a complicated affair to handle intelligently.
- 401 k.
It is a financial plan, in which some portion of the salary is contributed, along with payment by the employer. The accumulated amount is payable at retirement. Option of debt reduction by cashing or borrowing from 410 k may be considered. Obtaining cash involves premature withdrawal penalties, and also liable to taxes. Borrowing from 401 k may be tolerable, but then benefit of compound interest will not be available. Furthermore, state of debt would still exist, with the exception that instead of payment to creditors, same is being paid towards the 401 k plan. Therefore, this option may be recommended only if no other viable alternative exists.
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