How to Manage Credit Card Debt During a Divorce

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Divorce is complicated. When it comes to divvying out debt, even the most amicably separated couple can find themselves at odds. In New Jersey, you are responsible for any debt in your name—even if your spouse is the one who racked up the bill. It’s easy to become overwhelmed and end up spending buckets of money either paying off your ex’s debts or facing a pile of legal fees. To avoid making a complex situation any more confusing, here are some great money-saving tips for dealing with credit card debt during a divorce.

Deal With Debt Before Divorce

If you’re already facing credit card debt, it could be financially disastrous to add the high cost of divorce to your financial woes. While it may be difficult, your best option is to deal with the debt before you file for divorce. As tempting as it may be to wait for a court to figure out how to divide the debt evenly, you and your spouse will save a lot of money coming to an agreement on your own.

Meet up and discuss exactly what the two of you owe. If you both have your own credit cards, remove the other person as an authorized user from those accounts. Even if you are just an authorized user on an account, your credit can be impacted if your former spouse does not make on-time payments. If you have joint accounts, consider transferring the balance to new cards that you each take out separately. Look for balance transfer credit cards with low interest rates. If you can compromise with your spouse in how to divide the debt evenly, you could save hundreds or thousands of dollars in legal fees.

If You End Up Paying Your Ex’s Debt

Unfortunately, some people don’t have the chance to be proactive about marital debt before a divorce because they only find out about the debt after the fact. If your name is attached to the account the debt is under, you may have no choice but to take responsibility for the debt. You can take steps to getting your name removed from the account, but in the mean time, you will need to make sure the account is getting paid.

In order to protect your credit, you may be stuck paying off debt accrued by your ex. It is important to note that while you can petition the court to have your spouse repay you for these debts, this path is expensive and you may never get the money back—even if you have a court order. This is why it is very important to make sure you and your ex do not share any accounts at the time you file for divorce.

If your ex does not remove your name from an account willingly, you will need to get a lawyer to prove you did not know about the account and did not benefit from the loan. If you do end up being responsible for paying off a portion of this debt, kept diligent records of your payments. If your ex decides not to pay their part, you will be able to prove that you have a history of making good on your payments.

Work on Creating Good Credit Post-Divorce

Whether you are facing the arduous task of building your credit from scratch or working on paying off debts accumulated in your marriage and subsequent divorce, you will need to generate a solid plan to rebuild your finances. Create a list of your debts to determine how much money you can afford to put towards each debt every month. Your new budget will need to absorb living expenses as well as any debt you are responsible for after the divorce.

It can be difficult to adjust to life under one income instead of two—especially if you are struggling under the weight of credit card debt. Veitengruber Law’s experienced financial legal team can help you come up with comprehensive debt-relief solutions catered to your specific needs. Managing debt during and after a divorce can be complicated and stressful, but you don’t have to do it alone. We can help you make a plan to eliminate burdensome debt so that you can start to move toward financial health.

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10 Purchases You Should Never Make with a Credit Card

Credit cards can be powerful financial tools. They offer convenience, the opportunity to build credit, and can act as a loan to buy bigger ticket items. But when credit cards are not used wisely, they can cause a great deal of financial trouble. Overspending can lead to unmanageable credit card debt. To avoid out of control credit card debt, here are 10 things you should never purchase or pay for with a credit card.

1. Mortgage Payments

Most mortgage companies will not allow you to make direct payments with a credit card. If you do find a way to circumvent the rules of your mortgage servicer to make your payment with a credit card, you are asking for trouble. If you cannot pay off your credit card balance in full before your next payment is due, you will be paying for interest on a substantial balance. This added interest, on top of the interest you already pay on your mortgage, means you will end up paying much more for your mortgage payment than you should be.

2. Household Expenses

There are some arguments that favor paying for household expenses with a credit card. These arguments point out the convenience of online payments and credit card rewards. But the risk of paying your monthly home bills with a credit card is that you can easily lose track of your balance. If you go over your credit limit, you could face fees and heavy interest rates, not to mention potential late fees if your card is declined and you cannot pay your bill. Linking your online accounts to your debit card and checking account offers the same ease of payment without the added risks.

3. Medical Bills

The cost of medical care is expensive and many people struggle to pay off their medical debt. Paying for medical expenses with a credit card only makes this situation worse. If you find you cannot pay a medical bill immediately, get in touch with your medical care provider to see if they can set up a payment plan for you. Payment plans through the hospital will likely charge you much less in interest than a credit card issuer.

4. College Tuition

Most schools charge a 2-3% convenience fee for charging payments. If you cannot pay off the bill before interest accrues, you will end up paying even more. If you need help paying your tuition, the interest for student loans are often much lower than for credit cards. Talk to your financial aid department about work study opportunities, grants, scholarships, and other ways that can help you pay for college costs.

5. Wedding Expenses

Big, lavish, Pinterest-worthy weddings are all the rage right now. The average wedding costs $35,000.00. It can be tempting to start charging all your expenses to a credit card to pull off the wedding of your dreams. But unless your dreams also include crippling credit card debt, this is the worst way to budget your wedding. When you’re paying with a credit card, it can be easy to lose track of your budget and spend way more money in interest. It is better to save money ahead of time and start planning once you have enough money put away.

6. Business Startup Expenses

Paying for business expenses or startup costs with your personal credit card can be a recipe for disaster for your new business. It can take years for a business to become profitable, which means you could end up paying high interest on debt you cannot afford to pay back. Instead, opt for a small business loan which tends to have a lower interest rate. Looking for investors can also give you the cash you need up front to finance your startup.

7. Taxes

While you can pay your taxes with a credit card, you will end up paying more money which does not make good financial sense. The payment processing services that handle federal and state tax payments charge between 2-3% for using a credit card on top of a $2-$3 flat convenience fee. If you owe thousands in taxes, your processing fees can really add up!

8. Down Payments

Using a credit card to cover the down payment on your house, your car, or any other big purchase that comes with a loan is a good sign you can’t actually afford the loan. By charging the down payment, you are adding a large cost in the form of interest rates to the sales price of your item. If you find yourself scrounging around for the money for a down payment, you are better off waiting and saving.

9. Big Ticket Items You Can’t Really Afford

A good rule of thumb for credit cards is if you can’t pay it off in full by the end of the month, don’t pay for it with a credit card. This goes for cars, appliances, furniture, equipment, and any other big purchase you can’t afford outright. The interest you will accrue carrying this balance statement to statement will make these purchases more expensive in the long run. If you need to finance these kinds of purchases, look into financing options directly from the seller or loans that will allow you to include these purchases in your monthly budget.

10. Small Indulgences

These are the things you don’t really think about: your morning coffee, a sandwich for lunch, a few drinks with friends. It is convenient to just swipe your card, but without being super careful about your spending, this can lead to an out of control balance. Unless you are taking advantage of some kind of credit card rewards, it is best to pay for these items in cash. This will help you stick to a budget and spend more mindfully.

Which Credit Card is Right for You?

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While we maintain that it’s better to pay for things with money you have in your bank account, we acknowledge that most people today have at least one credit card. Whether you keep a card around for emergencies, or keep a running balance from month to month, it’s important to know how to navigate all of the fine print that credit card companies don’t advertise.

Which Type of Card Should I Look For?

First, you’ll need to figure out what you want out of a credit card. Are you looking for perks – like free airline miles, cash back, or other incentives? Perhaps you have had financial trouble and your credit score has suffered. In that case, you’d need to look for a credit card specifically targeted for people with bad credit.

Check your credit score before applying for a credit card so you’ll know what kind of interest rates to expect. The higher your credit score number, the lower your credit card interest rate should be.

If you’re transferring a balance from one card to another in order to save money, beware of cards that offer teaser rates. In most cases where a credit card is offering an unbelievably low interest rate on balance transfers, that super low rate is only temporary, and will skyrocket up after your introductory phase is over. This could be anywhere from 3 months to one year. So, if you’re tempted to move your balance from a credit card with a 12.99% interest rate to a card that offers free transfers and a 3% rate on the balance – get out your magnifying glass and read the fine print!

Many credit card companies make the above (or similar) offers to attract customers who may have a significant balance sitting on a different card with a medium to high interest rate. The other problem with these types of offers, beyond the introductory rate jumping up after a set time period, is that the “free balance transfers” offer itself often has a time restriction.

For example, let’s say you see a commercial for a credit card that is offering new customers “free balance transfers” with 3% interest on said transfer. What isn’t advertised is that many of these offers expire 60-90 days after you’ve signed up. So, you see an ad, apply for the new card intending to transfer your balance from another card, get your new card in the mail, and then…..LIFE HAPPENS. You get busy, and put off making the balance transfer. Several months later (probably while paying bills), you have a light bulb moment – “Oh right! I need to transfer my balance so I can stop paying all this interest!” After all, your new card offers free balance transfers and a much lower rate.

Unfortunately, by the time you remember to make the transfer, the “offer” may have already expired, which means there will probably be a fee on the transfer, and you may not be able to get the super low rate anymore, making the whole reason you switched companies null and void.

Your best bet is to research until you find a credit card with no yearly fee and a low fixed interest rate. This will guarantee you the same interest rate until you’re able to pay off the balance. Also, be sure to pay your bill on time every month, even if you’re only paying the minimum amount. This will help you avoid late fees – and being late with your payments can often cause your interest rate, even if it’s fixed (again: Fine Print) to go up.

 

Image Credit: Sean MacEntee