Should You Get a Divorce Loan? – U.S. News & World Report
- July 22, 2020
- By: Greenpath Financial Wellness
From U.S. News & World Report, Jeffrey Arevalo, financial expert at GreenPath Financial Wellness, provides insight about taking on debt during a divorce.
Going through a challenge such as a divorce can impact personal finances, notes this article about the pros and cons of taking on a divorce loan posted by U.S. News & World Report.
While there really is no specific category called “a divorce loan,” the article outlines that such a loan is a personal loan used for divorce-related expenses.
Personal loans are unsecured loans that allow a person to borrow a specific amount of money and pay it back, usually in monthly installments.
Interest rates for personal loans are usually lower than rates for credit cards but higher than rates for secured loans, such as home or car loans. A secured loan is a loan backed by assets you own, which can be used to pay the lender if you don’t repay the loan.
The article shares the pros and cons of such an approach. Most of the advice depends on each person’s individual circumstances.
Options to Carefully Consider
Here are a few other ways to deal with divorce-related debt:
- Negotiate legal payments. Ask your lawyer if you can pay off your bill over a period of months or even years. That could be a way to mitigate costs and avoid some of the higher-interest options, like credit cards or personal loans.
- Consider a home equity loan. Home equity loans are on option. If you came out of the divorce with sole ownership of your home and qualify for a home equity line of credit or loan, you could get a better rate than on a personal loan.
- Borrow from friends or family members. You might consider this option if you’re confident that you can pay back the money as agreed. Otherwise, you can damage – or even end – another relationship.
- Borrow from retirement funds. This is not an ideal option, but it might enable you to get money right away. You could make a withdrawal from an individual retirement account or a 401(k). Experts say to carefully consider this option because, “Typically when people move money from a retirement plan, they don’t move it back.”
After the divorce, a new financial reality will follow for each spouse.
Taking stock of income, assets and expenses, as well as setting up a budget, will be crucial for securing a strong financial future.
Advice from GreenPath
“It’s important to remain responsible with your finances and living within your new budget after such a major change,” says Jeffrey Arevalo, financial wellness expert at GreenPath Financial Wellness, a national nonprofit credit counseling agency in Farmington Hills, Michigan.
“Divorce can be an opportunity for a fresh start, and ideally you want to put yourself in the best position to succeed,” he adds. “Set goals, stick to the plan, and you can regain your financial health perhaps quicker than you thought.”
Those who might be wondering if taking on debt is the right step during a divorce should consider contacting GreenPath for a conversation about debt management.
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When it comes to deciding on financial decisions, support is available to you through a range of debt counseling services. Our financial counselors will work through your whole financial picture to help you identify options that can relieve financial stress.
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Jeff Arevalo is a Financial Wellness Expert and has been with the Greenpath since 2006. He possesses a strong passion for helping others and takes great pride in providing strong financial education and effective money management tools to help make a difference in people’s lives. Jeff and his wife recently welcomed a baby boy to their family and are excited to navigate the world of parenthood for the first time.