Though you may be going in for a divorce, it doesn’t mean you shouldn’t protect yourself from debt after a divorce. Getting rid of joint debts on credit cards is very difficult and if card issuers know there’s been a divorce between you and your spouse, they will come after you if your ex doesn’t pay up.

In such a situation, there are certain steps you should take to leave this marriage without any debt.

• Divide the debt on the cards you both use and move it to cards that are in your individual names. Alternatively, divide the debt on your joint cards. Also, cancel all joint cards.
• If either of you is ineligible for a card, have a relative cosign for it.
• Don’t make the mistake of getting out of marriage with a joint debt because if your ex does not pay or files for bankruptcy, the credit card issuer is well within his rights to demand the entire loan amount from you, besides any penalties and interest.
• Maintain records of all your expenses after your divorce date. This will tell you what’s yours and what isn’t.
• File documents regarding your joint credit cards and the money you owe early on. This is one way of keeping your ex from piling up debt, which you will be forced to repay.
• If you have property in joint names or a joint bank savings account, you can use it to lower your debt or even your home equity credit line.
• If your financial situation is grim, you perhaps have only the option to file for bankruptcy. If you do this while still not being officially divorced, you can both file together to keep your partner from being dumped with joint debt.

How to minimize joint debt during your divorce:

• Apply for a credit card in your single name. This will facilitate transferring your share of joint balances.
• Make a list of all your joint credit cards and check it against your credit bureau reports. Now, call all the credit card companies and ask for your current balances.
• Every three months, check your credit report during the divorce process to ensure that the three credit bureaus have updated and accurate information regarding your credit card accounts and that your spouse has not opened any new joint accounts.
• Beware of identity theft in the family, so look out for any new accounts opened in your name.
• Post-divorce, hold on to your credit monitoring service or ask for a credit report every three months. Two years after your divorce, you can monitor your credit report at six monthly intervals. This will help you keep on track and anticipate any problems relating to your former joint accounts.

Your credit score demonstrates your financial history, and since with every passing day you add to that history, that number is never constant. So, is it necessary to maintain a high credit score despite the fluctuating figures? And, how do you maintain your high credit score?

Why maintain a good credit score: Your credit rating depends on the information present on your credit card. The limit on your cards, any missed or late payments over the past seven years, bankruptcy in the past decade and other related information forms the stuff of this report. But these things can keep changing every time mistakes in your report are taken off, which helps to improve your score.

• Getting good interest rates: If you apply for a loan, your prospective lender will judge your repayment capability by checking out your credit score. So, if you have a high score, you will be given low interest rates, flexible repayment tenures or fewer fees.
• Getting credit: With a high credit score, you qualify for a loan or credit line.
• Employment: Employers use credit scores to assess a candidate’s suitability for finance-related jobs.
• Housing: Your credit score can qualify you for a mortgage, so if you have a high score, you can rent a place easily.

How to maintain a good credit score:

The components of a good credit score: If you know what goes into your credit score, it will be easy to maintain it. Its components are a good payment history, your debt level, credit mix, credit age and any recent credit.

• Pay your bills promptly: Even though not all the information about all the bills you pay is sent to the credit bureaus if you don’t pay on time, your credit report may reflect this. So, pay all your bills on time to maintain a good credit score.
• Maintain a low credit card balance: If you have a high credit card balance, your credit score will be poor. To maintain a good credit score, check that your credit card balance is not more than 30% of your credit limit. Any more would be risky. When your statement closes and you have a high balance, card companies report this to credit bureaus, and if a high balance shows up, your credit score is affected.
• Pay off your debts: Apart from credit card balances, your loans and credit lines too could negatively impact on your credit score. If your debt is so high that you can’t pay off your monthly payments, it will make a difference to your credit score.
• Keep your credit card live: If you make the mistake of closing a credit card, the issuer of that card won’t send any updates on it to the credit bureaus, but after a decade or so, the credit bureaus might take those details off your credit report. If the account is old, losing that credit history means that your average credit age will be shortened and your credit score will fall.

FICO: FICO was established in 1956 as the financial institution that launched the FICO credit score. The score evaluates your creditworthiness on a scale ranging from 300 to 850 and is used extensively by the three most reputable credit bureaus in the United States—TransUnion, Equifax and Experian. Though each credit bureau has access to your financial information, your credit score will vary from bureau to bureau, as they give different weightings to the information.

When you apply for a car loan, home loan or any other type of loan, your creditors get a hold of your FICO score. You too can get a copy of it but you can never expect to get the FICO score that your prospective creditors have for you. However, be sure to ask for the reason for refusal of a loan, and if your credit score was a reason, ask for a copy of it.

How to calculate your FICO score: For two reasons, you can’t find out your exact credit score —

1. One, due to complex statistical analysis used; and
2. Because the scoring formulae are not available publicly.

However, the general criteria used to calculate credit scores are publicly available. Based on the available information, you can tell which parameters of your report have brought down your ability to obtain a loan.

Parameters of calculating your FICO score: The main factors used to calculate your FICO score are:

• Payment history: This forms 35% of your score. You can improve your FICO score by paying your bills every month. If you have any delinquent payments, really old delinquency can lessen the negative impact on your score. Accounts of your collections and bankruptcy filings also play a prominent role in analyzing your payment history.
• Credit utilization: This accounts for 30% of your score and examines the amount of debt you have compared to the total credit amount in your accounts. If your account balances are low compared to the amount of credit available, it can help your credit score.
• Duration of positive credit history: This accounts for 15% of the total. The longer the duration of good accounts the higher your score, because it means that you can commit in the long-term to a creditor and can pay each month.
• Several kinds of credit: This accounts for 10% of the total. By having several kinds of credit, such as secured debt, consumer loans or credit cards, you impact your credit score positively.
• New credit applications: If you have applied for several new credit accounts, it amounts to 10% of your total score. If you’re applying for too much credit in a short timeframe, you’re at high risk because it means you need credit for your daily expenses. But, if you’re looking for a loan, you can apply to see where you get the best loan or interest rate; this won’t harm your credit score.

While you cannot calculate your own credit score accurately, you can review your credit report on the five factors named above to get an idea of whether the accounts listed on your credit report are hurting or helping your credit score. You can then take action to improve any potential problems, such as paring down your balances or paying off collection items.

• No more annoying phone calls: If you file for bankruptcy, you will not get any more irritating phone calls from debt collectors, or face potential lawsuits or wage deductions. If creditors continue to call you and violate the law, they can be prosecuted.
• Your creditors will stop contacting you: If you file for bankruptcy under Chapter 7, your creditors will be banned from calling you and the court too can withhold all pending cases against you, besides IRS seizures, repossessions, evictions and foreclosures.
• You experience debt relief: If you file for bankruptcy, you have two options: under Chapter 7, you can eliminate all or nearly all your unsecured debts inexpensively and quickly. Under Chapter 13, by declaring bankruptcy, you can get rid of all your secured and unsecured debts by setting up a repayment plan that suits you best. This also protects your secured debt assets.
• You can stop repossession or foreclosure: Filing for bankruptcy also helps to stop the process of foreclosure or repossession. At such times, creditors cannot harass or seize your property until the plan for bankruptcy is complete. You are also given more time to make a plan to pay and to hold on to your assets while you file for bankruptcy. If you file under Chapter 13, you have a 100% guarantee of protecting your assets if you continue to pay punctually.
• Your debt can be legally restructured: When it comes to your actual debts, the court usually restructures your debts by setting up an affordable plan for you. Sometimes, a part of the debt is written off or “discharged.” This helps to create a workable payment option that you can stick with and slowly become debt-free. This would not be possible without an impartial bankruptcy judge assessing your financial situation.
• You can build your financial life afresh: This is the prime benefit of filing for bankruptcy by avoiding the mistakes you’ve made so far and lead a financially disciplined life.
• Your debt can be completely eliminated: Under Chapter 7 bankruptcy, your debts can be completely wiped out. This is also referred to as liquidation since you are supposed to pay as much of the debt as possible. But those in debt have only one asset—their homes, which are safeguarded by the homestead exemption laws of the state they reside in.
• You can also repair your self-esteem: Being constantly worried about not being able to meet your expenses and your bills can be nerve-shattering. But you can eliminate that worry by declaring yourself bankrupt and work towards repairing your financial condition and self-esteem.
• You can dispute any false claims of creditors: You get an opportunity to dispute any false claims made by your creditors to get more out of you than is legitimately right.

If you do want to file for protection under bankruptcy laws, it’s best that you consult a good, experienced bankruptcy attorney to guide you through the complex process. It will help to have an attorney for the peace of mind you get from knowing that you’re on the right track and that you will come out of it soon.

Here are some ways of achieving debt-free status:

Your interest rates on the loan are vastly decreased: You will be charged a much lower rate of interest on the consolidation loan than what you would pay on your credit card. The money that you save by paying a low interest rate can be used to pay your debt and you can also save this money and free yourself from debt faster.

Your interest and any penalties are either drastically reduced or wiped out: If you pay only the minimum amount each month towards your credit card debts, the credit card companies add interest and financial charges to it. So, your total debt continues to grow alarmingly. To avoid such a situation, opt for debt consolidation, which can wipe out a part of your entire debt that has built up due to interest and other related charges, thus lowering your total debt dues drastically.

Your interest rates can be cut: Your debt management expert will negotiate on your behalf with your various creditors for a low interest rate so that you pay as much as you can. New interest rates mean your total dues are much less than before which translates into fewer monthly installments of lesser monthly amounts than before.

You can see a debt-free life for yourself ahead: By negotiating a lesser interest rate, your debt consolidation program can make you free of debt within about three years, on average, and save you big money too. If this is possibly much earlier than you anticipated, what else could bring you so much relief and happiness?

You can get rid of debt collectors’ harassing calls: By getting onto a debt consolidation program, you can be sure debt collectors will never call to ask you for payments. The debt consolidation company that’s handling your case will tell your creditors that they are your account managers from now on.

You can improve your credit score: By defaulting on your payments and having accounts that have been charged off, your credit rating goes down heavily. But if you’re on a debt consolidation program your debts are paid off, and very soon your report starts looking healthy.

You can now manage your unsecured debts: A secured or an unsecured debt consolidation loan can help you pay towards several debts simultaneously. This facilitates smooth monthly payments to your lender.

By working with a debt consolidation company, you can be relieved of the pressure of being a debtor and take corrective steps to get yourself out of the situation, which you got yourself into. You should treat this experience as a learning curve and become financially disciplined for the rest of your life.

Well, the bright side for you is that you needn’t spend all your waking hours trying to make the money to pay back your debts. There is a way out for you—you can opt for non-profit debt consolidation.

Understanding non-profit debt consolidation companies: Non-profit debt consolidation companies are those that specialize in providing credit counseling free of charge and helping out those in financial distress. On your behalf, these companies get in touch with those credit card companies and other companies to whom you owe money and negotiate your debts with them and also a reduction in your overall payments. You then pay the non-profit debt consolidation company back and they in turn pass on the payment to your creditors. This reduces not just your debt but also your relationship with your debt collectors.

How to choose a non-profit debt consolidation services agency:

• Do you know your financial situation well? Before approaching a non-profit debt consolidation services company, you should have a clear understanding of your financial situation. This is because very often debtors like you don’t have an exact picture of the amounts they owe in debt. Without this level of clarity, therefore, it becomes very difficult for you to select an attractive and workable debt consolidation package that may, in actual terms, may not be right for you.
• Go online and choose a respected company: There are several excellent non-profit debt consolidation companies online. Choose the one you think shows commitment and honesty. You may like to ask your close friends and family for their opinion and then zero in on the one you want. You can also run a check on this company’s credentials with the Better Business Bureau and the National Foundation for Credit Counseling.
• Should I have reached a certain level of debt to avail of such companies’ services? Not at all. A professional non-profit debt consolidation company will consolidate debts of any amounts if there are savings to be made. Those that ask that you have a certain debt level are debt companies for profit where sales people make huge commissions off your large debts.
• Don’t believe any non-profit debt consolidation company’s false assurances: If a prospective company says to you that it can get you out of debt in a matter of days or weeks, take this as a cue not to hire them. Debt is not as easy to get out of as it may be to get into.
• Be cautious about the personal information you reveal to these companies: If you tell them more than they need to know, there could be some level of misuse of information. So, give them only your necessary personal details. In fact, this could be a way of deciding whether you are with a trustworthy company or not.
• Is the company you’re vetting really a non-profit company? If the company you’re vetting charges you a fee, it’s obviously not a non-profit company. Also, check that this company suits your needs perfectly.

Do you qualify for debt consolidation?To qualify, you need to be heavily in debt and unable to pay your debts on their current terms without causing a financial hardship. If you are not neck-deep in debt, debt consolidation companies will not consider you to be right for their services. Use this checklist to see if you do qualify for debt consolidation:

• List all your secured and unsecured debts and make an outstanding balance for each type of debt.
• Tick off the debts you want to consolidate.
• Examine your credit reports so you know all the debts that are listed there before applying for a debt consolidation loan.
• If you have any collateral to put up, decide on it now. If you have no collateral to show, go in for debt consolidation.
• You need to submit proof of income and a copy of your budget to qualify for a consolidation loan. Lenders usually ask to see a copy of your budget or a list of your monthly expenses so that they can understand how much you can pay back each month.

How it helps you: Through debt consolidation, you pay back one small installment each month. This gives you a certain amount of savings every month, plus you can quickly get rid of some debt collectors. By this means, your credit rating will increase and your credit report will start to look encouraging. The higher your credit rating, the easier it will be for you to get loans in future.

Advantages of debt consolidation:

• The first big advantage is that debt consolidation helps you improve your credit.
• It also gives you cash in hand to spend since you only pay back a small amount each month.
• It saves you from bankruptcy.
• It helps you maintain a good credit rating and to combine all your payments into one.

Disadvantages of debt consolidation:

• Your credit will be affected if you do not pay regularly.
• If you opt for debt consolidation secured by your home, filing bankruptcy may be difficult
• You cannot default on your loan since the debt is now in the hands of a debt consolidation company, not your original creditors.

Tips to deal with debt consolidation:

• Find out the real cost of paying off your debts.
• Don’t accept a debt consolidation package that does not match your current financial position.
• Spend a few hours a day reading and understanding the terms and conditions of the debt consolidation package and find out its positive and negative points. Then, ask the debt consolidation company of your choice to help you decide.
• Compare the options of competitive agencies before deciding.
• Just because debt consolidation is the recourse others take doesn’t mean it’s right for you too. Explore other alternatives that may suit your financial position.
• Change your spending habits, curbing them as much as you can and spend only on what you need.
• Once you’ve paid your debts, don’t get back into debt. Remember how difficult it was for you to regain your independence from debt and avoid it at all costs.

Before rushing in to choose a debt settlement company, do your research thoroughly. When you come across a prospective debt settlement company, make sure you get answers to these questions:

• How long have you, as a company, been in business? It’s important to choose a company that’s been in business for a reasonable length of time, or you may be dealing with a fly-by-night company who will not give you complete and correct information about your situation.
• How much of my monthly installment will actually go to pay off my settlement? Some companies will keep asking you to pay for as long as 10 years, claiming that they are making you debt-free. Instead, this could be fees you are paying an unethical firm to the tune of half your settlement costs. So, ask specifically what the company’s fees are. Ideally, it should not take you more than six months to pay the fees completely.
• How does it work? If the company can explain its working process to you clearly and simply, you’re in safe hands.
• How long will I take to pay off my debts completely? A professional debt settlement company will devise a plan for you to pay off within 60 months at the most. If it takes longer than that, it may be too long for you. On the other hand, be wary of those who claim to make you debt-free in just six months.
• Will my monthly payments go into a trust account? A good debt settlement company will start a trust account for you with a third party trust account service. From this, you will be aware of the deposits you have made to the company that you still are in control of. Before anything is done with your money, the debt settlement company needs your permission.
• Can I see sample letters of actual settlements you have done on behalf of your other clients? By asking for such letters, you are ensuring that the company is capable of reducing your debts as it did with other clients.
• Do you offer your clients any alternative bankruptcy assistance if debt settlement does not work out for them? Some companies refund a part of the costs so that you can organize a bankruptcy attorney. So, check with this company about any alternatives to debt settlement.
• How much should I expect to pay in fees? Ensure at the outset that you can afford in fees what the debt company charges you. If you can meet the financial needs of the debt settlement program, good for you, but if you feel you can’t, say so at the outset.

• Stop using your credit card: If you are in debt to the tune of thousands of dollars and are spending more on your credit cards than you are earning, then you must stop using your credit card and become liquid again.
• Make a budget: By making a budget, you can spot those areas where you can curtail your expenses and start saving money. Though you can’t but spend on your rent, food, utilities, mortgage and insurance, you can certainly stop spending large amounts of money on your credit card.
• Let your credit card companies know you have financial problems: By doing this, these companies might not charge you interest for a certain period, and might work out a plan for you to settle the entire discounted amount. However, if negative credit reporting bothers you, don’t go in for a discounted settlement or it will show up on your credit report as “settled for less than full amount.”
• Spend cash; don’t use your credit cards: Retailers know that when you spend cash, you don’t make any impulsive or smart buys, because you think twice before buying. That’s why they make the credit card experience so attractive that you pay with a flourish and buy expensive things on it. So, don’t fall for that—use cash for spending.
• Negotiate for a lower rate of interest on your existing credit card: If you can transfer your outstanding balances on your credit cards to a low interest credit or a 0% APR credit card, you can save a lot. Banks usually offer a low introductory rate of interest which lasts for about six to twelve months, which is a big help in lowering the amount you pay.
• Pay extra to your debt: If you find yourself with some extra cash each month, put it towards your debt to help eliminate it as soon as possible. This works if you pay to the debt with the highest interest rate. If you live carefully within your means, set up a budget, pay cash and are offered a lower interest rate, you can save a lot of money each month.
• File for bankruptcy: Another option is to file for bankruptcy. Actually, this should be your last recourse to get over your debt. For this, you need to ensure that you have a good bankruptcy lawyer on your side, or you may stand to lose in court.
• Is your credit report accurate and updated? Every so often, check your credit report to ensure that the information there is accurate. If you’re neck-deep in debt, it doesn’t matter if you’re offered cash back, reward points or any other perks.
• Keep your card accounts live: Pay up your entire balance in full.