Divorce, like any big life event, can impact both partners' finances.
In 2015, freelance writer Miranda Marquit walked away from her divorce with a little bit more than $15,000 in joint debt. She made small automatic payments on the accounts for the first couple of years, but in 2018 she decided to become serious about getting rid of it.
She answered a flyer she received in the mail offering a debt consolidation loan at a low 2.9% interest rate.
"It was kind of sneaky in my opinion," Marquit tells CNBC Select. "I had excellent credit at the time, so I thought it was a slam dunk. I went through and used my 'special code' and I got some response about a program that would fit my needs."
Marquit thought she was signing up for was a debt consolidation loan. She accepted the offer, entered her checking account information and gave the company permission to begin taking out payments.
It wasn't until a lender sent her a letter saying it was going to sue for nonpayment that she went back and reread the paperwork.
"I thought it was one thing and didn't carefully read through," she says.
Marquit realized she had actually been in a debt settlement for more than a year and her credit had "tanked" without her knowing.
The distinction between a debt consolidation loan and a debt settlement program is significant.
Debt consolidation loans are personal loans through a company like SoFi or Payoff that merge your various debts, such as credit card bills and loan payments, into one. Instead of paying multiple bills each month, you make one monthly payment to your new lender. This usually results in lower interest and helps you simplify and streamline your bill payments by centralizing them into one place.
But debt settlement, on the other hand, is different. Typically, debt settlement entails a third-party company negotiating your debt with the creditor for a lower amount than you owe. As these negotiations take place, you make monthly payments to the debt settlement company that are to eventually go toward the agreed-upon lump-sum payment that completely "settles" your debt.
Debt settlement sounds promising, but the process can be risky. A settlement may not always be reached, and it can take some time before one is so your credit gets damaged in the meantime as your bills go unpaid. (Payment history is the most important factor that determines your credit score.) The creditor could also end up sending your account to collections or suing you over the debt (which is what happened to Marquit).
And as your bills go unpaid, you are collecting late fees and interest in the meantime.
There are no guarantees with debt settlement programs. Be careful before you sign up for one. Always do your research and take notice of any programs that promise debt relief that's too good to be true. Check out a debt settlement company beforehand with your state attorney general or local consumer protection agency. The Federal Trade Commission (FTC) also recommends typing the name of a potential debt settlement company, along with "complaints," into a search engine to find any reviews or lawsuits. As an alternative, consider going to a nonprofit credit counselor who can teach you how to manage your debt for yourself.
It's been a little more than two years since Marquit first signed up for the debt settlement program (what she thought was a debt consolidation loan at the time), causing her credit score to drop more than 100 points.
While Marquit regrets not paying closer attention to the fine print of the paperwork she received, she says her biggest mistake was a simple one: not checking in on her credit at the time. By the time she noticed that her credit score dropped significantly, it was too late.
"I hadn't been keeping tabs on my credit and I hadn't been checking my credit report," she says.
Luckily, keeping an eye on your credit is easy. Make a habit of pulling your free credit report each week from the three major credit bureaus — Experian, Equifax and TransUnion — on AnnualCreditReport.com.
You may also want to consider signing up for a credit monitoring service. CNBC Select ranked the best ones and, depending on your current financial situation (whether you want a free service or paid), the below picks are a good place to start.
Best free credit monitoring services
Best paid credit monitoring services
Marquit also uses a cash-back credit card, the Capital One® Quicksilver® Cash Rewards Credit Card, to earn a little extra money on her spending.
Having gone through this experience, Marquit's main piece of advice for others is to read the fine print of any financial programs before you sign up and continue to always check your credit score.
For those in a similar debt situation, turn to the National Foundation for Credit Counseling (NFCC), which offers a portal for people to call and receive free credit guidance from a nonprofit credit counselor. This organization can guide you through challenges like paying off debt, preventing foreclosure and managing your student loans.
Information about the Capital One® Quicksilver® Cash Rewards Credit Card has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.