If you are recently divorced, then you can practically understand how much difficult it’ll become to pay all your monthly dues out of just one single paycheck. The situation becomes more difficult and confusing when you and your ex-spouse - both have an existing joint credit card account. There is a chance you may become responsible for taking care of the balances that you didn't use at all.
So, if you're still suffering from the lingering credit card debt after divorce, you may . But, you must also remember that each idea has a different impact on your finances in a different scenario.
1. Prepare personal repayment plan
You don't need lots and lots of cash at a time to pay off your debts. You just need to save some part from the paycheck you're getting each month. It’s easy to pay a little extra towards your due credit card bills. By this way, you can lower your total debt amount gradually.
Pros of personal repayment plan - Personal prepayment plan has the snowball effect. As soon as you start saving and paying extra, your total debt balance will reduce gradually. , .
Cons of personal repayment plan - If you can't stop yourself and continue using those cards, I'm afraid, it’ll not be possible for you to manage the increasing debt balances.
Its effect on credit - As you are paying off the balances, your credit rating will rise again. The percentage of available credit of your account will also increase. , . If it happens, it’ll affect your credit score badly.
2. Home Equity Loan
After separation, if you have the house at your possession, then it can be a good chance for you. If you’ve got some equity in your house, you can pay off your credit card dues by taking a home equity loan.
Pros of home equity loan - Home equity loan . So in the long run, you may need to pay much less than you’ve expected.
Cons of home equity loan - Using a home equity loan means you are actually replacing an unsecured debt with a secured loan. That means, , .
Its effect on credit - If you pay off the cards, it shouldn’t affect the credit score. According to some experts, , .
3. Debt Settlement
It is one of the most popular options of repaying credit card debts. You can hire an external debt settlement company. The company will negotiate with your creditors to settle the unsecured debt (credit cards); that is, to reduce the total debt amount. Different debt settlement companies have their own criteria. Normally, $10,000 is the benchmark for most of the settlement companies, but, you can negotiate with them also.
Pros of debt settlement - In this option, . Through this option, you can settle your credit card debts and reduce the total debt amount heavily. Most debt settlement companies will help you to settle your debts within 2 to 4 years.
Cons of debt settlement - The settlement companies will charge a certain percentage of your total savings, as their fee. You'll certainly need to pay taxes on the amount saved by the debt settlement companies. For an example, if you’ve $15,000 credit card debt and it’s going to settle for $9,600, you might have to pay taxes on $5,400 saved.
Its effect on credit - Debt settlement will hurt your credit score. Once your debts are paid off, your credit score will rise again, within few years.
You must do a proper homework before you pick any method for paying off your debts. If you choose an external firm, check its reputation, client testimonials, and accreditation by BBB (Better Business Bureau). If everything goes ok, you can relax and depend on that firm.