As agents who work in both the niches of short sales and divorce, we are very often keenly and confidentially aware of the credit card debt that has been accumulated. To compound the TOTAL of the debt...the couple may not always have a sterling credit rating which means the interest rate is very high.
In addition, if some part of the balance has been cash withdrawals the rates on those balances are even higher. It may seem at the time to be a very temporary even "one time" remedy to a shortage of cash...but in our experience reviewing financial information, it can often become a habit.
Like "snitching" from the cookie jar or opening that bag of chips,...the limit to "just one" never seems to work before the diet ,...be it calories or debt is long forgotten and the taste of pleasure takes over consuming the consumer.
In divorce there are various ways to divide income and assets...someone or both people has to be responsible for the credit card debt. This debt can easily have mounted into five figures....and for people who foolishly only pay the minimum balance...while continuing to add to the balance, the situation only becomes worse.
When we first began working with short sales, we were referred to a couple who applied for more and more credit cards all the time. He was unemployed in the construction trades and hopefully believed that he would working soon. While we gave him A+++ in his hopeful attitude, they kept using one credit card to make the minimum payment on another and were now six figures in credit card debt. We had to explain that while we could help with the mortgage debt, they should seek the wise counsel of a bankruptcy lawyer to deal with the rest of credit card debt.
We always suggest...IF we are asked that clients examine their credit card debt and how long it will take to pay off using various figures of payments...the results are always a shock to them when they realize how very out of hand the debt has become. This charge now/figure it out later syndrome is NOT at all reserved for people having small five figure incomes...just the opposite is true in many instances...where the income may be well into six figures...and it matches the accumulating debt.
We suggest that people go to a website that enables them to see in Black and white how long credit card debt will take to pay off. Click here for one of the sites we recommend.
To drive this point home, let's use an example of $60,000 in debt with an interest rate of 17%. Let's imagine for the sake of this illustration that this balance represents only goods and services and no cash withdrawals. Let's also "plug in" to this equation the figure of $875 a month in regular monthly payments also not figuring that additional purchases may be charged thereby increasing the balance. For purposes of this illustration, we tried using lower payments and got an error message that indicated that a lower amount did not even cover the interest and we needed to increase the monthly payment. Using this example, with NO additional purchases, it would take 252 months OR 21 YEARS TO PAY OFF THIS DEBT !
In divorce where the debt may be assumed by one spouse as part of the settlement...it is EXTREMELY dangerous for the other spouse to agree to such terms. For however many YEARS it takes to pay off this debt...this is part of the debt to income if it remains in both names for both people....a "forgotten" payment continues to ding the former spouse's credit rating while he/she is trying to improve it. If such a proposal is made to you....Just say NO...there may well be other assets...a retirement fund, inheritance ....etc. that can be used to pay off or pay down this debt so that it doesn't continue to contribute to the credit ruin of both people .
While we can't legislate high school curriculum...we strongly advise that you sit down with high school and college age children and show them some of these illustrations so that they can begin to comprehend what after graduation appears to new found "financial freedom" can quickly become an anchor of debt.
This is a financial public service message brought to you by Sally K. & David L. Hanson, Broker Associates with Keller Williams proudly serving southeastern Wisconsin.