Starting over post-divorce and deep in debt
I recently went through a divorce that left me in debt up to my eyeballs. I feel like I need to start over, but don't know where to begin. Help!
By Walter Updegrave, MONEY Magazine senior editor

NEW YORK ( - I recently went through a divorce that ate up all of my 401(k) and left me in debt up to my eyeballs. I still own a home, although I have no equity in it, but I recently made the mistake of leasing a truck with insurance and lease payments that are the size of my house mortgage.

I still have a pension and I'm still employed, making about $60,000 a year, but I must also make child support payments. I feel like I need to start over, but don't know where to begin. I'm hoping you can give some direction, as I feel I'm going down for the third time.

- Anonymous, Cleveland, Ohio

Please don't take this the wrong way, but man, your life sounds like a parody of a country music song. The only thing missing is your dog running away.

But let's focus on the positive. You have a job, you make a pretty good salary and if you're willing to make a concerted effort, you should certainly be able to rebuild your finances and gain some financial security.

I suggest this three-step approach:

Get yourself on a budget. You've got a good amount of money coming in, but not enough so that you can spend willy nilly. So sit down, lay out your expenses and make some priorities.

Start by figuring out how much you've got to spend on essentials. That would include shelter, food, health insurance and, most definitely, those child support payments. I don't want to get on a soapbox here, but nothing riles me more than people who don't support their kids. So whatever differences you and your ex might have, put them aside and make sure your kids get the money they need to have a shot at a decent life. Your kids shouldn't have to pay for whatever mistakes you and your former spouse may have made.

Transportation for getting to and from work and around town is also an essential, but a big expensive truck that sucks down $3-a-barrel gas like a Hoover vacuum is not. What someone in your situation needs is a car (preferably used, not new) that gets you where you need to go without costing a fortune - in short, basic reliable transportation.

Unfortunately, getting out of a lease deal can be difficult and expensive. And in some cases it might not be practical. Nonetheless, you should at least look into possible outs, which you can do by clicking here and here.

While you're at it, look for other ways to cut back. Do you really need premium cable? Can you eat out less often? Maybe brownbag it a few days a week at work? If you really want a fresh start, you'll identify some ways to scale back your lifestyle.

Start an automatic savings and investing program. Once you've got a better handle on your budget, you want to focus on rebuilding your savings.

In my experience, the best way to do that is to arrange things so that money goes directly from your paycheck or checking account into some sort of investment account. This way, your money actually ends up in savings rather than being diverted into some purchase or another that always seems like a necessity at the time.

The most convenient way to put your savings program on autopilot is to sign up for your company's 401(k). Your contribution to your account is deducted from your paycheck before you can get your hands on it, and you also get a nice tax break since the money you contribute isn't taxed. At the very least try to contribute enough to get whatever matching funds your company offers. This is like getting free money and, in effect, makes your employer a partner in your financial recovery.

If you don't have a 401(k) or similar plan at work, open an IRA account at a mutual fund company that will automatically transfer each month whatever amount you stipulate from your checking account into the fund. The maximum you can invest in an IRA this year is $4,000, plus a $1,000 "catch up" contribution if you're 50 or older.

If you can save more than this, open up a non-IRA account as well. Virtually all fund companies offer such automatic investing programs, and many will lower their minimum initial investment requirements for IRA accounts. For a look at some funds you might consider, check out the MONEY 65, which is MONEY Magazine's elite list of recommended funds.

Stay positive. One of the big dangers to people in your situation (which, if history is any guide, also includes your ex) is that the combination of emotional and financial stress caused by a breakup of a marriage can be so overwhelming that it leads to sense of hopelessness, a feeling that you've gotten into a hole so deep, you'll never claw your way out.

That's understandable. But it's also why it's important that you begin taking action now - don't procrastinate on that budget and starting that savings program. Once you see things start to look up a bit, once you get a better handle on your expenses and you see your savings balances growing again, you'll begin to regain a sense of control over your life.

Once that happens, your life can begin to seem less like one of those heartbreaking country music songs and more like that famous refrain on The Beatles' Sgt. Pepper album - "It's Getting Better All The Time."


More recent Ask the Expert columns:

Help these super savers

Getting in on the gold rush - the smart way Top of page

Follow the news that matters to you. Create your own alert to be notified on topics you're interested in.

Or, visit Popular Alerts for suggestions.
Manage alerts | What is this?