People’s attitudes about debt are shifting. This may be because millennials are likely to have larger amounts of student debt. According to a poll conducted by Money magazine, 41 percent of millennials believe debt is a deal-breaker. If you’ve recently wed the love of your life (and his/her debt), here are a few ways to deal with the situation:
Separate or Together?
One of the first questions you’ll face when handling debt as a couple is whether to combine the debt or keep it separate. While legally you won’t be liable for any debt your partner had before you got married, you could become financially liable. Once you get married, you and your spouse start working towards the same financial goals. These goals can range from becoming homeowners to putting future children through college.
That means that even though you aren’t legally responsible for each other’s premarital debts, it’s often in your best interests to sit down together and come up with a plan for repayment. If you’re merging your finances after marriage (and sharing bank accounts), it’s no longer about ‘your’ money—it’s about ‘our money.’ Working with a credit counselor can help you come up with a plan to pay off debt so that you can move forward and ultimately focus on bigger financial goals.
How to Prioritize
Part of paying off debt together is figuring out which debts to focus on first. Typically, it’s a good idea to concentrate on the so-called bad debt first. Credit card debt is considered bad debt because it tends to have a higher interest rate and you can’t deduct the interest that you paid from your tax return. However, student loan and mortgage interest can be deducted from your tax return – and those loans tend to have a lower interest rate.
Deciding to work together to pay off your debts can also make it easier for you to pay them off. For example, one of you might owe thousands on a high-interest credit card. If that person tries to pay off the card with just his or her income, it can be challenging to make payments and still have enough left over for necessities. However, using your joint income to make the payment can make the situation less challenging.
Handling debt as a couple is more than just tackling existing loans you brought into the marriage. It also means coming up with a game plan for future debts. Sit down together and talk about your goals for the future. Figure out what you plan to do once you’ve paid off existing debt. For example: Do you plan on getting a mortgage to buy a home? How will you approach credit card debt as a couple? Are you and your partner on the same page when it comes to how to handling your money now and in the future?
Remember, you don’t have to the debt talk alone. CESI‘s certified credit counselors are here to help. Whether you need to make a plan for debt repayment or you need help to create a joint budget, contact us to start putting your married financial life in order.
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Consumer Education Services, Inc. empowers people to overcome their financial challenges and lead financially-healthy lives.
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