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ELIMINATING SHARED DEBT
Preventing joint credit debt is going to be easier than
improving credit as a result of credit that is shared
with your spouse. We have detailed a story below that
helps describe the effects of having joint credit and
what you can do to eliminate and/or prevent it.
Starting a new life/relationship after a divorce
Annette, a 22 year old full time student at Harvard, married
Jordan, a 29 year old lawyer. The day they got married,
her
credit score declined significantly.
You see, Jordan had been previously married. His ex-wife
had delinquent accounts before they were even married.
She continued her bad credit practices during the
duration of the marriage and after the divorce.
Unfortunately, Jordan incurred his first wife's debt as
soon as they got married and passed it on to Annette
when they tied the knot. How? When couples get married,
assets as well as debts become 'joint'. A divorce does
not eliminate the financial obligations one has; even if a
judge makes a ruling indicating who is responsible for
what bills. Creditors and credit reporting agencies
don't care about court rulings. If the debt does not get
paid, all of the names associated with the debt are
going to be affected.
The above scenario is only the beginning of more bad
credit problems as a result of joint debt
While in college, Annette had accumulated tens of
thousands of dollars in
student loans. Once she married
Jordan, she decided that she was going to drop out of
school. This decision initiated her student loan
repayment period. Even though Annette and Jordan both
have full time jobs, paying this new debt is making it
difficult to pay all of the bills.
Jordan's divorce ruling allowed him to keep the family
car. However, the vehicle was purchased with a
car loan
and still had plenty of payment left. Also, his ex was
awarded all of the furniture. So, when Jordan and
Annette decided to start a life together, they needed to
buy new home furnishings. They also ended incurring more
debt as a result of paying for their wedding and
honeymoon. Both of their credit scores continued to
decline.
Coming up with a plan...be smart!
A plan was formulated. They would take all of their
credit card debt and transfer to a new credit card that
offers 0% interest on balance transfers for the first
six months. Unfortunately, as a result of their poor
credit and high debt-to-income, they were declined by
the credit card company.
Jordan tried reduce some debt by
refinancing the auto
loan. He was successful. However, because of his bad
credit, he had to extend the loan term three more years.
He was able to lower the interest rate slightly and get
some
auto equity. Jordan and Annette used the equity to catch
up on some of the bills.
Over the next several months, the couple continued to
make regular payments to their credit card bills. Not
only did they diminish their overall debt-to-income,
they improved their credit score. It was a good time to
re-apply for a credit card offering 0% interest
introductory rate for the balance transfers. They got
approved!
**Learn more about
plans for getting rid of credit card debt.
After four months, Jordan received a letter from the
credit card company indicating that the 0% intro rate
has been terminated. This was as a result of being a few
days late on their auto loan payment. The auto lender
reported the late payment to the credit reporting
agencies. The introductory terms for all credit cards
require that cardholders make their payments for all of
the debt commitments on time every month. If they
don't, the intro rate is terminated. It is also likely
that the regular interest rate associated with the card
will be higher as a result of the late payment. Learn
more about
default credit card rates.
What should have been done before the marriage?
Jordan and Annette should have both
ordered copies
of their credit reports. This would have allowed them to
see all of their debts and what their credit scores
were. It would have also allowed them to ensure that the
information was accurate and up-to-date. Any
errors would need to be disputed and removed as soon
as possible!
Before divorcing his first wife, Jordan should have made
sure that all of her debts were getting paid, on time!
Although the only way he could have been 100% certain
this was getting done was to make the payments himself,
he would at least have peace of mind that it was getting
done. He should have also made sure that all joint
accounts he had with his ex were closed to prevent any
additional charges getting racked up.
Annette should not have stopped going to school; not only
to further her career development, but to delay her
student loan repayment obligations.
Some other things they could have done while starting
their lives together was to buy used furniture with
cash, instead of charging everything. Spending less on
their wedding and honeymoon should have also been
considered.
In conclusion....
Marriage and joint debts can indeed put 'more glue
in the pot'; making it difficult to move on after
divorce. Using the information in this article will help
you understand what you can do to avoid becoming a
victim of the issues associated with having shared
debts.
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