You have found the love of your life, but he or she is dealing with significant debt. The debt issue should be part of the overall financial discussion that every couple has – the smart ones, before they marry; the less-prepared ones as they fight about money that has already been spent.
Finances are a delicate topic, but one that needs to be addressed before you get married. A good way to frame the discussion is to keep it focused toward the future and togetherness. You can bring up the issue as planning how to get your potential spouse out of debt while maintaining the best family credit ratings possible.
Assuming you get past that sticky point, here are the main points to address:
- Assess the Source of Debt – Is the debt understandable and unavoidable – for example, student loan debt accrued in acquiring a degree – or does it come from fiscal irresponsibility? If it was due to irresponsible behavior, does your potential spouse recognize that now?
Share your savings philosophies and expectations for debt and spending during marriage. Include your financial pasts, current credit ratings and other relevant details. Let your spouse go first, and look for areas of potential compromise. Both of you must participate freely. Otherwise, it will seem like a lecture – and that is a bad way to start a marriage.
- Choose Joint vs. Separate – Decide whether joint or separate accounts and applications make sense for your future marriage expenses.
Contrary to popular belief, you do not automatically assume your new spouse's debts upon marriage, and your credit histories remain separate. You can choose to keep accounts and purchases separate if you wish. However, if you live in a community property state you may be responsible for some debts incurred only by your spouse during the marriage (see individual state laws for details).
"Everybody in the U.S. has their own credit history, so we don't merge the two," explains Rod Griffin, Director of Public Education for Experian. "But if you apply for joint credit both are going to be considered. So, it's hugely important to take care of your credit history."
Joint accounts and debts that you assume together do affect both of your credit scores. Adding your spouse's name to accounts (or adding your name to his or hers) changes that status, depending on how you do it. With joint credit accounts, both of you are fully responsible for the debt. Adding your spouse as an authorized user instead of a joint account holder keeps your credit scores separate but you alone are responsible for any debts your spouse puts on that account.
The same philosophy applies to mortgages when it comes time to buy a house. You may be better off applying under your name only to receive a better deal and better rates (assuming you have better credit). Should your spouse have the higher income, joint application may make more sense even if the credit score is diluted.
- Set up Spending and Saving Rules – Once your account philosophies are clear, you can set up mutually agreeable guidelines for spending and saving. You may decide to pool incomes and keep all expenses joint, keep accounts completely separate and divide the expenses, or reach some compromise between the two positions.
The effect on credit should be considered, but realistically, the most important aspect is what set of rules you are the most comfortable living by as a couple.
- Prenuptial Agreement – With a huge disparity in incomes and philosophies, a prenuptial agreement may be a wise decision. That can possibly put a damper on the relationship, but it is better to have these issues out in the open before you wed.
A true love will understand your feelings and concerns and work toward a compromise, even if they do not agree. Should you have difficulty resolving these issues, you might consider whether this relationship really is the one for you.
Differences in religion and attitudes towards children are hard to resolve, but differences in financial philosophy and money management can be an entirely new level – and they are really expensive to deal with after you are married.
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