How can I improve my credit score before divorce with $29k in debt?

A

AlcRicks92

New Member
I am 32 years old. I am married. I am looking to divorce soon. My credit score is in the low 600s. I have $25k in credit card debt. I have a $4k medical bill in collection. I have $33k in student loans. I make $90K per year salaried. I have $50k in my 401K.

I am consideirng a debt consolidation loan to pay off the medical bill and credit card debt. Or should I withdraw from my 401k? My goal is to increase my credit score so I can secure housing when my marriage ends. Any advice is helpful. Thank you.
 
Don’t borrow from your 401(k) that money is for your future.

Here are practical steps:

Get a cheap used car.
Rent a studio apartment or a room.
Pick up an extra job or work extra hours.
Sell what you don’t need.
Pay off debt from smallest to largest, while paying the minimum on everything else.
Call your creditors and credit card companies to ask about debt settlement options.
 
Honestly, if I were you, I'd find a house and rent just a room for yourself since you're divorcing. Build wealth, pay off all debt a single room is cheap and grab a 2 3k old reliable car. There's no secret to it, just time. With 90k a year, assuming no child support, you can clear most, if not all, of the debt in year one, but you'll have to live strict and boring while you do it.
 
In this situation, tbh, I'd consult a lawyer first, bc you need to find out how a divorce will affect your finances. Also, I'd go through your stuff. If anything you have is exclusively yours and isn't essential, sell it for cash and stash that cash somewhere safe not a financial institution, and not somewhere it's likely to get stolen. You'll need a starter fund once the divorce is final.
 
Check your state laws. I am in the process of divorce myself (CA). I have no debts except a mortgage and car loan, but any money made during the marriage will be split, even if it is in personal investments or savings. Once you file for divorce, you won't be allowed to move money around. At least in my state. Just be careful with how you proceed.
 
I would borrow from my 401. You set your repayment period, and any interest you pay goes to yourself. You can also consider a personal consolidation loan to reduce interest. If you leave your company, you decide whether to pay the balance in a lump sum or take the hit and don’t pay less money in your 401 plus penalties. I say 401 because you mentioned your credit score. A lender checks your credit score; more debt means a lower score. Your 401,does not check credit to disburse funds. Good luck.
 
Paying down credit card debt will definitely help your score. Take your total credit limit and multiply it by 30% that’s the balance you can leave to help your score. If you can get it down to 0–1%, your score will be much higher.

For any debts with rates above 5% APR, I’d try to get a loan under 5% APR. Whether you can get that rate really depends on your current credit score. But the goal is to get a lower interest rate instead of keeping the higher ones.

If you take from your 401k, you’d risk losing 7–10% compounding growth. I’d only pull from it if you can’t get a 30% credit card balance or!a decent loan approved in a few months.
 
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