When you get married, you commit to embracing your spouse’s loveable (and not-as-loveable) quirks. But are you also committed to accepting any debt they might have?
Whether it comes from credit cards and personal or student loans, business-related expenses or real estate investments, debt can be a common point of contention in a relationship, especially if one spouse has debt and the other doesn’t. Is this your second marriage? Debt is also common when a previously married partner is paying alimony or child support associated with their prior relationship.
Talking about debt is just one crucial step toward a financially confident life together. The following tips can help couples better address and work off debt together.
1. Put it all out on the table
Make a list of all debts (big or small). Credit card balances, student loans, car loans—whatever it is, write it all down. Be honest with each other and you’ll have a better picture of what you’re working with. Add to the list the amount you are paying each month towards these debts so you can insert these into a budget.
2. Find out your credit scores
Your credit score is a three-digit number that helps lenders evaluate the risk of your ability to repay your debt. Your score can impact your access to credit and lower interest rates. After you get married, you and your spouse will continue to have individual credit histories and scores.
Share your scores with one another and discuss strategies to improve or maintain them. If one of you has superior credit, for instance, you might consider adding the other to an existing credit card account—capitalizing on the good history one partner has earned to improve the other’s credit score.
3. Understand how state laws impact your debt and marriage
Find out if your state is a community property state or common law state and how that can affect any debt being brought into the marriage. You may consider looking into a prenuptial agreement. A common misconception about these agreements is that they dictate only the terms of divorce. However, they also can dictate marriage terms. The agreement could specify what debts, assets and obligations should remain separate, such as alimony from a first marriage. That way, one spouse’s assets are protected from the other’s creditors. This is especially important in community property states, where either spouse’s creditors can claim income and assets that are considered “joint.”
4. Decide together how you will tackle each debt
Set up a family budget that allows you to pay down debt and manage spending. You can also explore other strategies to pay down debt, such as:
A credit card transfer
This is where you transfer balances to a credit card with a lower interest rate. Keep in mind that there’s usually a fee for the transaction, and the lower rate may last only for a certain period of time (e.g., six months). If one of you has superior credit, consider transferring balances to that person’s cards, since they likely already have lower interest rates.
A debt consolidation loan
Debt consolidation is exactly what it sounds like—combining several small loans or credit card balances into one larger loan, often with a lower interest rate. In order for it to be worthwhile, the interest rate on a consolidation loan should be lower than the average of the interest rates on the smaller loans or credit cards. And, ideally, the monthly payment on a consolidation loan should be less than the sum of the monthly payments of the items you are consolidating. Learn more about debt consolidation.
5. Set shared financial goals
Once you have a good idea of your options for tackling debt, set a shared goal to get there. Use your budget as a guide for what’s possible. Debt free in 3 years? Increase your credit scores by next year? Write it down. From there, you can set other financial goals. Looking to purchase a home, raise a family or buy a car? Map out a shared plan to get there.
If you’re still nervous about talking money with your partner, consider working with a financial advisor or a couple’s counselor. They can facilitate the conversations and come up with a financial plan to help keep you in a state of wedded bliss.