Steve BucciDear Debt Adviser,
My finances have suffered greatly since my divorce. My ex-husband stiffed me with a load of expenses that he helped create. Until we sell our house, I'm stuck with credit card bills of more than $15,000. I have a good job, $2,000 in savings, and I care for our 5-year-old daughter. How can I organize my finances after a divorce?
You are going through one of life's most stressful events. I know because I was there myself once. I can tell you that if you hold on to your sanity and your finances, better times are ahead. To get there, however, you need a plan.
I'm concerned that you have only $2,000 in savings and are spending a lot more than you earn. This makes you vulnerable to additional problems that may crop up, such as an unexpected large expense or a job interruption. So please be careful of your spending and start building an emergency savings account. You might also try to get a line of credit while your home is on the market if you have the equity. You don't have to use the line. It can just sit there in case of an emergency.
Normally I tell people to begin their planning by setting some goals. In your case, however, you should shoot for getting through the next six months to a year. When things settle down a bit, you can do some real goal-setting.
I want you to start by getting all your current expenses down on paper or on a spreadsheet and compare them to your income. Make sure to include the child support that your ex-husband has been ordered to pay for your daughter. Look closely at your paycheck deductions for additional income. Consider slowing down retirement contributions temporarily to maximize your take-home pay.
You can get help developing a spending plan by contacting a nonprofit credit counseling agency. They'll help you for free. They may also be able to help with the $15,000 you owe on your credit cards if you're able to stop using them. A counseling agency can help handle your credit card debt under a debt management plan only if the accounts are closed. Most plans will allow you to keep one active credit card, however.
Should you discover during the counseling sessions that you do not have enough income to meet your obligations, your counselor will recommend options for handling the situation. You may be able to cut expenses enough to pay what you owe until you sell your home.
Once your house sells, set some short-, mid- and long-term goals. Once you've set some goals and made a budget, you'll be ready to see a financial planner and get on with building a new life for yourself and your daughter.
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