Divorce is a significant life transition that often brings financial complexities alongside emotional challenges. One of the most significant hurdles many women face after separation is managing debt – whether it be debt accumulated during the marriage, legal fees incurred during the divorce process, or the economic strain of transitioning to a single-income household.

If you are navigating debt after divorce, it’s important to know that you are not alone and, more importantly, that financial recovery is achievable. It’s understandable to feel overwhelmed, but with a well-defined plan and consistent effort, you can successfully manage your debt and create a more secure financial future. Let’s outline a strategic plan to assist you in that process.

Step 1: Conduct a Thorough Debt Assessment

The first step towards financial recovery is to gain a comprehensive understanding of your current debt situation. Compile all relevant financial documents, including bills owed, loan statements, and credit card information. Create a spreadsheet or use a notebook to record the following for each debt:

• Creditor: The institution or entity that the debt is owed to (e.g., Commonwealth Bank, Latitude Financial, etc.).
• Type of Debt: Categorise the debt (e.g., credit card, personal loan, medical expenses, etc.).
• Total Balance: The outstanding amount owed.
• Interest Rate: The annual percentage rate being charged.
• Minimum Monthly Payment: The minimum required payment each month.
  
  

This process may be challenging, but it is a non-negotiable first step. An accurate assessment of your debt is fundamental to developing an effective repayment strategy.

Step 2: Develop a Post-Divorce Budget

A budget serves as your financial blueprint, providing a clear picture of your income and expenses. If you haven’t already, create a realistic budget based on your current single-income circumstances.

Track your expenses diligently for a month, either manually or use a budgeting app (get our free one here (INSERT LINK)). Then, categorise your spending (e.g., rent/mortgage, groceries, transportation, utilities, etc.) and identify areas where expenses can be reduced. Your budget will also show how much of your disposable income you have available for debt repayment each month.

Step 3: Select a Debt Repayment Strategy

Two widely recognised and effective debt repayment methods are:

• The Debt Snowball: This method prioritises motivation by addressing debts sequentially, from smallest balance to largest, irrespective of interest rates. Allocate the minimum payment to all debts except the smallest. Direct all available funds towards that smallest debt until it is fully repaid. Then, “snowball” that payment amount onto the next smallest debt, and so forth. The psychological benefit of quickly eliminating smaller debts can be highly encouraging.
• The Debt Avalanche: This method prioritises interest minimisation. List your debts in descending order, from the highest interest rate to the lowest. Allocate the minimum payment to all debts except the one with the highest interest rate. Concentrate all extra funds on that debt until it is paid off. Then, proceed to the debt with the next highest interest rate. While this approach may take longer to yield initial results, it ultimately saves the most money on interest payments.
  
  

Choose the method that aligns best with your financial circumstances and personal preferences. Sticking to your chosen strategy is paramount.

Step 4: Investigate Options for Reducing Interest Rates and Payments

High interest rates can significantly hinder debt repayment progress. Let’s look at some potential avenues for reducing your interest rates and repayments:

• Balance Transfer Credit Cards: If your credit rating is favourable, you may be eligible for a balance transfer credit card offering a 0% introductory interest rate for a defined period. This can provide temporary relief from interest accrual while you focus on reducing the principal balance. Thoroughly review the terms and conditions, paying particular attention to any associated fees and the revert rate after the introductory period ends.
• Negotiate with Creditors: Contact your creditors directly to explain your situation. They may consider lowering your interest rate, waiving certain fees, or establishing a temporary hardship plan.
• Debt Consolidation Loan: Refinancing your home loan or taking out a personal loan can consolidate multiple debts into a single loan, potentially at a lower interest rate. However, exercise some caution and ensure that the terms of the new loan are genuinely advantageous and will not result in higher overall costs in the long term.
• Educate yourself: Investing in your financial literacy is a powerful step towards taking control of your financial future. A structured course like ‘My Money Makeover’ can empower you with the tools and roadmap you need to achieve your financial goals. (INSERT LINK)
  
  

Step 5: Enhance Your Income

Increasing your income will directly accelerate your debt repayment progress. Look at some of these ways to increase your earnings:

• If you are employed, research industry salary benchmarks and prepare a well-supported case for a pay raise during your next performance review.
• Think about picking up a part-time job, even for a few hours per week, that extra cash, even from just a few hours a week, can really help you tackle your debt.
• Check out freelance work or online platforms like Airtasker or Fiverr to make some extra cash.
• You can also sell stuff you don’t need on Gumtree or Facebook Marketplace for a quick injection of funds.
  
  

Step 6: Maintain Motivation and Acknowledge Progress

Paying down debt requires sustained effort and perseverance. There may be moments of discouragement. Therefore, it is crucial to:

• Monitor Your Progress: Employ a visual tracking tool (such as a chart or progress bar) to monitor your achievements and maintain motivation.
• Recognise Milestones: Acknowledge and celebrate the repayment of each debt, regardless of its size. Consider a small, budget-conscious reward to reinforce positive financial behaviours.
• Remain Focused on Your Objectives: Regularly remind yourself of the reasons why achieving financial independence is important to you. Whether it’s to alleviate stress, provide for your children’s future, or build a more secure life, keeping your goals in mind will help you stay committed.
  
  

Achieving Financial Well-being

Navigating the aftermath of a divorce and managing debt can be a daunting experience, but it is an undertaking you are fully capable of mastering. By implementing these steps, you are not merely reducing debt, you are rebuilding your financial foundation and assuming control of your financial future.

Be patient with yourself (and kind), remain committed to your plan, and remember that each step forward, however small, represents progress.