When couples divorce, one or both may be left with some of the debt that the other partner accumulated. Or just as bad, they have their own debt, but now there’s one less income to help pay it off. Getting out from under that debt is essential to starting your new life, but can be difficult since your income is limited. Here are some steps you can take to help you eliminate what you owe.
First, sit down and see what your income is after taxes. There is no way of knowing what you can afford without knowing how much you bring home each month. If your income fluctuates, this can be tricky, but try to get a good estimate by averaging out as far back as you’re able. It’s always best to treat this as the maximum you will make, and not assume that there will be raises, promotions, or bonuses. Many people often assume that they will get a certain bonus because they have every year in the past, and when the economy turns sour, they find that they’ve counted on that money being there, and now it isn’t. Only count what you’ve earned, and if you’re unsure, round down.
Second, figure up your expenses. Put them into two categories- essential and non-essential. Essential expenses would be things like a house or car payment, whereas non-essential is the amount you are spending on coffee each month. For expenses that are essential but fluctuate, such as groceries and the electricity bill, create a third column where you note what the expense is, and the average of what you’ve spent over the last 3 months. In the essential column, make sure to take care of these expenses first when paying your bills. Obviously, if they are essential, they need to be taken care of. Then, work on your essential fluctuating bills. With these, look for opportunities to cut back. If you’re bad about leaving the lights on, be more diligent about turning them off, and you can trim the electrical bill. If you trade one favorite meal for something a little more bland, you could save a few dollars. Finally, look at your non-essential list and see what you’d really miss. Maybe you can drink the coffee at work and bring your own specialty creamer. Maybe you can decide to do without cable, and you watch your favorite shows online. Cut as many of these as possible. If you keep in mind that these are temporary changes, and that you are giving yourself a raise by freeing up that extra money, it won’t be as difficult to do without. You’ve already made one major life change, in the form of getting divorced. You can easily handle making smaller changes.
Once you’ve given yourself that extra money each month, pick one bill and work on paying it down. Let the others continue to be paid as normal, but look for every opportunity to pay down the one bill that you’re tackling. If it’s a credit card where you had been paying a $15 per month minimum balance, once that’s paid off, you’ve given yourself another $15 raise per month. Take that $15 and apply it to the next bill you choose, and so on. Once it’s all said and done, you will have a lot more money, and can add the fun things back in to your budget.
Finally, figure out whether you can reduce your essential costs. Trade down in house size, or switch from a large apartment to a smaller, cheaper one. Maybe trade in your car and the large payments for an older one.
Following these steps, I managed to pay off nearly $6000 in debt that I had after my divorce. I traded from a large 3 bedroom apartment to actually being able to buy a house that saved me almost $300 a month. And I did this in less than a year. Yes, it meant cutting back on eating out and getting rid of cable entirely. But now I’m free of credit card debt, and I’m building equity in my own home.
