Handling Credit Card Debt During and After Divorce

Whether you're slamming down the credit card to cover the lawyer's fees, first and last month's rent for a new apartment, or the kids' school supplies, credit card debt is easy to rack up.
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Padlock and stack of credit cards on top of laptop
Padlock and stack of credit cards on top of laptop

Divorce can drain funds from the checking account. The attorney needs a retainer. (And likely, so does one of the kids!) You need money to pay consultants and maybe a custody evaluator or other experts. Perhaps you've set up a new household. And maybe you haven't worked in a decade so your employment options include volunteering to get experience or a minimum wage part time job that doesn't come close to meeting the rent and utilities.

Whether you're slamming down the credit card to cover the lawyer's fees, first and last month's rent for a new apartment, or the kids' school supplies, credit card debt is easy to rack up. Before long, you're anxiously dodging monthly statements, hoping there's enough to cover minimum payments, and realizing you'll probably owe money for decades.

Los Angeles attorney and Certified Family Law Specialist Steve Mindel, managing partner at Feinberg, Mindel, Brandt, & Klein, says there are numerous levels of credit and debt for divorcing women who may not have established credit in their own names. No matter where you are in the divorce process, there are key issues to address.

Establish Credit. While you're in the planning stages, establish credit in your own name. Life without credit is almost impossible in America today.

Know Your Credit Score. You'll not only be dividing assets but also assigning debt. Ascertain what's in your name, what's in your husband's, and what you hold jointly.

Talk to a Financial Planner or Accountant. You'll have lots of financial decisions ahead of you as you proceed through divorce. When you liquidate assets like a house or IRA distributions, you'll need to assess if it's better to use the money to pay high interest credit cards or to leave where the money where it is and pay monthly. You'll take a beating but will have cash. If you aren't in that league, you can still contact the Better Business Bureau to find nonprofit debt review entities.

Split Custody of the Cards.
Divide credit card debts between the two of you. "You get the Amex and Citibank Visa; I'll take the Nordstrom and Bloomingdale's."

Consider a Loan from a Peer to Peer Lending Platform. Peerform Lending's Gregg Schoenberg says, "We're trying to be in the best position to facilitate loans that often beat credit cards, which are very expensive. The sector has definitely picked up steam since the financial crisis. Banks are concerned about plugging holes in the balance sheets and innovation has filled the void. Marketplace lenders like Peerform Lending have been growing."

Consolidate Debts. Schoenberg says marketplace loans are absolutely good for debt consolidation. "If a woman who is in the process of going through or has gone through a divorce needs to get her financial house in order, the idea of paying significantly less in many cases than what credit cards charge each month can make very good financial sense," he adds.

Use a Short Term Loan for Large Purchases. "You wouldn't buy a house on a credit card," adds Schoenberg. "If you have a specific expenditure like moving expenses, furniture, or medical bills, a term loan can make sense. But, traditional banks don't like to extend term loans to people who actually need the money."

Don't Cut Up All Your Credit Cards. Research FICO scores. Keeping a zero balance and charging from time to time rather than closing credit accounts may keep you in good stead.

Create a Strategy. Recognize there are different ways to finance purchases. Schoenberg says he believes in debt segmentation as part of an overall financial strategy to get control over every dollar spent. "I believe that part of that strategy needs to involve discipline. Knowing when you borrow $8,000 for X and paying every month can be a very effective tool versus using a credit card with a high limit."

Scale Back Expenses to Match Income. Mike Cardoza, family law expert and author of "The Secret World of Debt Collection" says, "Don't count 100 percent on child support or maintenance, which may be late. You may need to save money to sue for enforcement of payments. If you work for $25,000 a year and have child support and maintenance on top of that, aim for disposable income of $300-500 per month."

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