For couples on the brink of getting married, the whole “how do we co-manage our finances” subject can really dampen the celebratory mood. Nevertheless, it’s an important topic to tackle — particularly when one or both parties bring a sizable amount of student loan debt or other debt to the union.
With debt in the equation, you must ask deeper questions than “should we get a joint checking account?” or “who’s going to pay the electric bill?” As the co-founder of a marketplace lender that offers student loan refinancing, I’ve heard firsthand some of the complex conundrums that arise when couples with student loans get hitched. Do you inherit each other’s loans automatically when you marry? Will your new spouse’s debt affect your credit score? And what are the implications for any new debt you take on after the wedding?
In my opinion, these are pretty smart questions to ask. Rather than waiting for issues to arise — ones that can put a strain on your wedded bliss — why not tackle the matter head-on and decide how you’ll deal with debt as a couple? Here are four ways to do just that.
1. Know the Rules
When you’re in debt, knowing what you owe is always important. Your debt status becomes a little more complex after you’ve legally bound yourself to another person with loans of his own. The good news is that any debt you individually incurred before getting married remains separate. So if one of you is bringing $50,000 in MBA loans to the marriage, those loans belong to the original borrower alone — even if you get divorced.
After you’re married, however, the rules change. If you apply for joint credit, cosign on a loan together, or even add your spouse as an authorized user, both of your credit reports usually reflect these actions. In the case of joint credit, you’re both fully responsible for the debt, rather than splitting it 50/50. It’s also important to determine whether you live in a community property state, where even the debt incurred by one individual in a marriage can become the responsibility of his spouse in the event of divorce.
2. Aim for Total Transparency
You can easily imagine how debt could cause marital problems if couples aren’t vigilant. That’s why it’s so important to communicate openly, not only about the amount and types of debt you each bring to the marriage, but also the individual attitudes and actions toward debt that will shape your shared financial life going forward.
These conversations are probably not going to be easy. But if you can’t stand being in debt and your future spouse has a ton of it (or vice versa), the best thing you can do is to put all your credit cards on the table and decide how to deal with it together. I personally don’t believe that debt has to be a deal breaker — but if one or both of you are unwilling to communicate about it, to me that’s the real red flag.
3. Look into Refinancing
One way to minimize the strain of debt on your marriage is to minimize the debt itself, and a great way to do that is to refinance high interest rate loans. Just like with mortgages, student loans can be refinanced at lower interest rates, which can allow you to make lower monthly payments or to be done with loans sooner — all while saving you money on interest over the life of the loan.
While you’re at it, don’t forget to take a look at your high interest rate credit cards. If you’re not clearing the balance each month, chances are you’re paying a fortune in interest. If you can qualify for a lower interest rate personal loan, using it to pay off credit cards can have multiple benefits. In addition to saving money on interest, you also quash the temptation to run up a tab (which could come in handy if one or both of you can’t resist putting purchases on the plastic).
4. Stick to the Plan (and Stick Together)
Now that you know exactly what you’re dealing with, you’ve had the tough conversations, and you’ve done what you can to reduce your debt burden through refinancing, it’s time to come up with a debt payoff strategy you can both follow and about which you feel good.
This is why it’s helpful to understand your respective attitudes toward debt and align on your bigger financial goals as a couple. If you both agree that getting out of debt is your No. 1 objective, it’ll be much easier to support one another in adhering to a budget that allows you to do so.
In conclusion, know that deep conversations about debt should take place before the big day. Consider your financial planning just one more check box to complete before you say “I do,” something that will help you face your future together with confidence in a shared vision. Here’s to a happy marriage and healthy finances!
Dan Macklin is a member of the DailyWorth Connect program. Read more about the program here.