This month at Legit Lender, we’ve published a lot about relationships and finance. Because as much as we’d like to think that love is independent from money, we know it’s not. Your relationships affect your finances and your finances affect your relationships.
Divorce and Finances
Relationships can take an especially heavy toll on our finances when a divorce hits. We covered everything from how divorce affects your credit and how to protect your credit from divorce, to how to live successfully after a divorce. Because as messy as a divorce can be, it doesn’t have to define you. It really is possible to pick up and move past your divorce.
Long before divorce is on the horizon, however, it is important to establish good financial habits as a new couple. When you’re in a new relationship, you aren’t yet stuck in a groove with your partner. Set habits that will make a successful financial life when you are together, but will also protect you in case things go south.
If you are newly divorced, it is important to still take care of your finances. We covered several tips on how to save as a single mom, which might mean learning to live well on less.
Credit Builder Success Story: James, 31
At 23, James thought he had done quite well for himself. Fresh out of college, he had a good job, was married and was already building equity in his recently purchased home. Less than a year later, that all came crumbling. When the economy tanked, James was one of the first to let go at his company, since he had the least seniority. As hard as he tried, he couldn’t find a new job with anything close to his old salary- everyone else was also laying off.
It wasn’t long before he was starting to make late payments on his mortgage. The stress this put on the relationship ultimately led to divorce, which made it even harder to keep up on the house. Before long, he defaulted completely on the mortgage, and was eventually foreclosed on. On top of this, he still had his student loan debt and a car loan to take care of.
Fortunately the story doesn’t end there. Fast forward 8 years, and James has no problem qualifying for a decent credit card (with points nonetheless), a mortgage with a low interest rate, and another car loan. So how did he do it?
Rather than despairing over where he had landed, James focused on what he could do to move forward. Although he couldn’t find a job that paid as well, he managed to find a job in retail that would at least maintain some income.
Right away, James also focused on trimming his expenses to the bare minimum. He found a small, but still comfortable apartment which rented for a fraction of the cost of his old mortgage. He also qualified for an income based student loan repayment plan, allowing him to stay current on his payments and avoiding yet another ding to his credit. James also sold his 2 year old car to pay off his car loan and replaced it with a 10 year old car.
In time, James did find another job, this time paying close to what his first job paid. In the mean time, however, thanks to his nimble response, James emerged with only one ding on his credit- his foreclosure. And although this is still a serious ding, he still maintained consistent, on time student loan payments, and was able to close out his car loan without any dings. Thanks to these positive marks on his credit, the effect of the foreclosure gradually faded from his credit, until he recovered his nearly perfect score
Going Forward
Now that his career and credit is back on track, James is able to finance just about anything he’d like. However, that doesn’t mean he does. He learned from last time, and this time lives on much less than he makes, hoping to be more resilient to any future crisis that comes his way.
James is back to building equity in his home, but this time he’s starting with a much more affordable house with a mortgage only marginally higher than his rent on the apartment. On his credit card, James only charges transactions he knows he can afford and never carries a balance, avoiding huge interest charges. And while James does have a car loan, he purchased a 4 year old mid range car instead of a brand new luxury car as he had the first time around.
For now, the extra money left over after his much lower expenses is going into an emergency fund. However, in the future, once his emergency fund is where he wants it to be, he is planning on using the extra money to pay down his house so he can reach mortgage independence sooner.