by Emily Hechler 
Navigating your finances after a divorce can feel overwhelming, especially when you are calling all of the shots. Taking control of your finances post-divorce is essential to overcoming your negative financial situation. On the other hand, you may be able to budget and plan your future with ease. No matter whether you’re consolidating debt, paying off joint loans, or saving for retirement, this guide will give you actionable steps to help you toward financial recovery and independence after divorce.
Monitor Your Current Financial Situation
At this point, we’re assuming that your income is separate from your spouse. With this in mind, note what you are obligated to pay on joint loans or alimony. Since these expenses are non-negotiable, ensure you have the income to cover these payments. Also check your other minimum debt payments, and ensure you have the income to cover them. If you don’t have enough income, consider a debt consolidation loan to reduce your minimum monthly payment. While this will likely increase how long you will be paying toward these loans, it means you’re getting by on your own, which is a win! Finally, note your current assets and retirement savings to know how much of that money is yours still.
Create a Beginner Budget
While there are many different budgeting methods and rules, we’ll walk through maintainable methods that will help you financially recover in the short and long term. First, create a zero-based budget. As you build your budget, start with your calculating with your minimum monthly loan payments. If you can’t cover your minimum loan payments and your other basic living needs, look into debt consolidation and reduce your expenses. You may also need to temporarily increase your income to push yourself toward long-term financial stability.
Rebuild Your Emergency Fund
Hopefully, you can cover your minimum payments and afford the rest of your needs plus a little room for savings. If this is your reality, use that extra money to build an emergency fund. Your emergency fund should cover three to six months of your expenses to give you a financial cushion in case of an unexpected situation. It may take several months or over a year to rebuild your emergency fund. However, the trade-off is not being able to afford an emergency and taking out another loan.
Pay Down Your Debt
After you build your emergency fund, it’s time to strategically tackle your debt. This doesn’t include joint debt with your ex. Focus on paying down the debt that only you are responsible for managing. The snowball method focuses on paying off the smallest loan balance first, while the avalanche method focuses on paying off the loan with the largest interest rate first. You can use the money you no longer need to add to your emergency savings to pay off your debt. Determine which debt payoff method works better for you with our calculator.
Plan for Retirement
Once you are on your way to paying off your debt, you should plan ahead for your retirement. Many employers offer a retirement savings match if you utilize their 401(k) or Roth IRA accounts. This means your employer will contribute as much as you do toward your retirement savings, up to a certain amount. This is a smart option to boost your savings. The sooner you can set up your retirement savings with a match, the more money you’ll have in these accounts to take advantage of during retirement. You can supplement your retirement savings with accounts at Alltru. We offer Traditional and Roth IRA accounts to help you save for your future.
Rebuild Your Credit Score
Post-divorce, your credit score may be damaged. Rebuilding your credit score will help you secure lower interest rates on loans. Making your minimum loan payments on time will help increase your credit score because this shows your lenders that you are a dependable borrower. In addition, keep your credit utilization, or available credit, low. Do your best to avoid using more than 30% of your credit. For example, if you have a $10,000 credit card limit, don’t charge more than $3,000 to your card without paying it down first. To help you gauge how much debt you have versus your income, calculate your debit-to-income, or DTI, ratio. The lower your DTI ratio, the better.
At Alltru, we understand that bad things happen to good people. That’s why we offer checking accounts for those with low credit scores and credit building loans to help rebuild poor credit scores. Our various tools can help you get back on your feet after a financial setback like divorce. Make an appointment with a Certified Credit Union Financial Counselor for help creating a plan to get your finances where you need them for a strong future.
Increase Your Income
Amidst recovering financially after divorce, you may have a large income gap or too much debt to handle. It may be in your best interest to temporarily find a second job or to find a full-time job that pays a higher salary. Many people are financially independent for the first time in years after a divorce. It can be a scary reality as you adjust to a new normal. While a second or new job requires more change, your present and future self will be better off because of your hard work. Plus, you can meet new people to have in your corner that will cheer for you, no matter what life has in store next.
Recovery Is Possible
Recovering financially after divorce is a gradual process, but each step you take brings you closer to independence and security. Even though the process is overwhelming, assessing your current expenses, budgeting wisely, and saving strategically will put you on a path to a better financial future.
