Divorce can be expensive, and recovering may take some time and assistance. Aside from the legal costs, you may be required to pay spousal and/or child support. Furthermore, your expenses have probably increased while your family income has probably decreased if you no longer have a partner contributing to monthly finances. All these changes, occurring all at once, can leave you in a bit of a financial hole. So how do you make ends meet? Do you borrow from friends or family? Do you get a consolidation loan from the bank? What’s the best way to bail yourself out of financial debt after divorce?
The best starting place is to ensure you have a detailed budget. Next, determine what your monthly income is. If your expenses outweigh your income, then you will need revisit your budget and make some tough choices about how you can maintain a positive cash flow. If that means cutting out some expenditures, then that’s what you will need to do.
If you must borrow, utilizing a line of credit or setting up a consolidation loan is probably one of the most cost-effective means of borrowing to pay down debt. The intent should be to pay off the loan as quickly as possible, and preserve this credit facility for a rainy day.
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If you choose to approach a friend or family for a personal loan, they will want to be assured that they will be repaid. Friends want to help if they can, but don’t want to be taken advantage of either. Make a detailed plan about how and when this will happen. Be prepared to talk about setting up the loan similarly to how you would arrange repayment of a loan through a bank. How long will it take to repay the loan? What is the interest rate and compounding frequency? What payment frequency can you afford? It may be an awkward conversation to have, but it’s far better than not addressing repayment and awkwardly avoiding that person until you pay them back. And consider this; when you don’t abide by a bank ‘s lending terms, your credit score will suffer. Not conforming to terms of a personal loan can have a damaging affect on a friendship.
Finally, try to avoid loan options like taking cash advances on credit cards or payday loan places. Staying ahead of your interest rate charges, let alone trying to cut into the principle loan amount, can be difficult when you select one of these options, and having to pay so much in interest can have a crippling effect on your monthly expenses.