Family Debt Management – Tackling Debt as a Couple
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A recent report published by MagnifyMoney, owned by LendingTree, found that the average family credit card debt for indebted households is $8,683.
The story starts to get really bleak when you consider the impact debt and money troubles can have on the people heading those households. A study published in 2012 found that disagreements over money were the strongest indicator of divorce when compared with other common marital disagreements such as sex and trouble with in-laws.
If you’re having challenges with managing money and repaying debt — don’t worry. In this post, we’ll give you tips for family debt management and how to have constructive conversations about finances so you can avoid having an unhappy ending because of money.
Here are steps to take that will help you create a family debt management plan that works:
Discuss your money mindset
Developing a plan to repay family debt starts with having a chat about your money mindset and financial habits. The person you fall in love with may have a very different view of managing money than you do.
You may view money as a tool to save for long-term goals. Your partner may be more concerned with instant gratification. Neither viewpoint is wrong. But these values and habits are things you need to be aware of to create a workable money plan.
Amanda Teixeira, a financial education start-up founder living in Omaha, Neb., made it her mission to tackle student loan and credit card debt with her husband as soon as they got married. As newlyweds, they had a heated money discussion that brought to light some differences in their habits.
“We put our honeymoon on a credit card,” Teixeira explained. “It was against my own personal code of how we should use money. As soon as I realized we were going to get hit with interest, I had a freakout on our honeymoon,” Teixeira continued.
They used cash wedding gifts to pay off the honeymoon, but the disagreement about using credit cards had a lasting effect. They didn’t want to experience that type of financial upset in their marriage again, so the couple discussed their habits to come up with an effective money plan.
Open up a dialogue about your mindset, habits and values to better understand where your partner comes from when they make decisions about debt. This will help you create your own budget and help you stay debt-free once you pay it all off.
Focus on your household goals before talking numbers
Try to avoid the “we need to talk about debt” approach. Someone who’s not numbers-oriented can feel overwhelmed. Ease into the debt conversation by focusing on family goals and determining what financial moves you want to make as a couple.
Elle Martinez, a personal finance author in Raleigh, N.C., recommends thinking about two or three lifelong goals you want to achieve together to inspire motivation to repay debt.
“It’s kind of like planning an epic trip. You want to be excited about this,” Martinez told LendingTree. “You want to talk about where you are now and where you want to be.”
Seeing goals on paper can even get a partner that’s more of a spendthrift to stay committed throughout the debt repayment process. Here are a few goal-oriented questions to ask your partner during your conversation:
- Where do you see yourself in five years?
- What are the major purchases that you want to make in your lifetime?
- When do you want to have kids?
- When do you want to buy a house?
- Where do you want to buy a house?
You can always circle back to these questions if you or your partner ever goes off track. These goals are what give your debt repayment plan a purpose.
Have the awkward facts and figures discussion — and be honest
Talking about income you earn and debt you have can be pretty uncomfortable but you need to rip off the Band-Aid. Helen Ngo, a certified financial planner based in Atlanta, tells LendingTree it’s integral that couples discuss debt before marriage because of the long-term implications.
For example, if you or your partner is on an income-based student loan repayment plan, getting married can completely change your tax situation.
“A lot of couples don’t think about how marriage bumps up their joint income when they file taxes,” Ngo said. “Then they’re no longer eligible for the lower student loan payments.” A student loan payment that doubles or triples will have a significant impact on your finances.
And what if you’re both excited to become homeowners, but you don’t find out until you apply for a mortgage that your partner’s credit score is less than stellar? That can make it difficult to get approved for a loan or, if you are approved, much more expensive.
It’s not uncommon to fear the dreaded debt and credit conversation with your partner so don’t feel alone. Ngo has worked with couples who’ve had severe anxiety about sharing their debt. She explains that a partner is likely to be more understanding when you’re transparent and when you show how serious you are about the debt payoff plan.
Develop a budget
Your budget should keep track of your monthly expenses, savings and debt repayment goals. The importance of a budget goes beyond just helping you repay the debt you currently have. Maintaining a budget will help you avoid going into debt again once it’s paid off.
How you track your budget depends on what works for you. It doesn’t have to be anything complicated. You can use a budgeting app, a pen, and paper or even a simple spreadsheet.
You can learn more about how to create your household budget here.
Try out multiple approaches to repaying debt
The best approach to repaying debt is the one that works for you. You can plan to repay debt aggressively or over an extended period of time.
The Martinez family decided to pay down debt steadily over six years, which gave them the time and budget needed to still be able to take vacations, buy a home and enjoy other milestones. “We looked at the student loan debt and it was such a low-interest rate,” said Martinez. Paying it down aggressively didn’t seem as necessary as it might for, say, a pile of high-interest credit card debt. “We also wanted to have a little bit of fun,” she added.
When tackling debt, Matt Becker, a fellow LendingTree contributor, and fee-only certified financial planner, emphasizes the importance of teamwork. “I see couples get into trouble when they think of their money separately,” Becker told LendingTree. “When you talk about ‘my income’ or ‘your student loans,’ you’re putting yourselves on different teams and that inevitably leads to resentment and conflict.”
In Becker’s experience, the couples who view money as part of one “joint pot” and make decisions together toward common debt goals are the ones that experience the most success.
Here are two popular strategies used to pay off debt:
- The debt avalanche method is when you pay the debt off with the highest interest rate first regardless of the balance. The motive behind this approach is to pay off the most expensive debt first to save on interest charges. The drawback is that it may take a while to see results if your most expensive debt is also one with a very high balance.
- The debt snowball method is when you pay off debt from smallest balance to largest balance. The benefit of this approach is that you have the small wins right upfront. Paying off the smaller credit card balances can keep you motivated and inspired to continue crushing through your student loans, auto loans and other debt.
Experiment with how aggressive you pay off debt and try out both methods — the debt avalanche or the debt snowball — to see which works best for you.
Use tools to demolish your debt faster
Here are a few resources to consider using in your family’s debt repayment journey:
Consolidating your debt is when you use another form of credit to pay off your other debts. For example, if you and your partner have multiple credit cards, you could benefit from consolidating your debt with one personal loan, a home equity loan or a balance transfer card.
A primary benefit of consolidation is the convenience factor. You and your partner can worry about making fewer payments to different entities throughout the month. The other benefit is cutting costs. Credit card debt specifically can be expensive because of high-interest rates and fees. A low-interest personal loan or balance transfer card with a 0% APR introductory deal can save you money and help you repay debt faster.
Student loan payment plans and/or loan forgiveness programs. If you’re tackling federal student loans, consider looking at options such as loan consolidation, repayment programs, and loan forgiveness.
The Public Service Loan Forgiveness program is one that can ease the financial burden for borrowers. It can be especially useful for students who graduate with remarkably high student loan balances (i.e. doctors, lawyers, veterinarians etc.) After 120 qualifying loan payments, the balance of your student loans can be forgiven. You must work for an elected government agency, tax-exempt 501(c)(3) or other qualifying public service organizations while making these payments to be eligible for forgiveness.
Not sure if you or your partner qualifies for a forgiveness program? Do yourself a favor and look over the opportunities. Public Service Loan Forgiveness is just one of several federal loan forgiveness programs. Review our federal student loan forgiveness guide for more details.
Debt management plans (DMP)
Signing up for a debt management plan through a credit counseling agency could be worthwhile if you’re struggling or overwhelmed by debt payments. A credit counselor reviews your income, consolidates your payments and negotiates rates with your creditors to lower your debt. Think of the counseling agency as the middleman. They create the debt repayment plan. You make payments to them and they pay off the debt for you.
Debt included in a debt management plan must be unsecured (i.e. credit cards, medical bills, personal loans etc.) Your mortgage and auto loans are examples of secured loans that cannot be included in your debt plan. A small monthly fee is typically required for the service. Try negotiating on your own first to reduce your debt. If you need help, a counseling agency could provide the right kind of extra support.
Hire a financial planner.Bringing in a third-party expert can help make joining finances easier for couples as well. Sure, there are financial planners that won’t work with you unless you have a couple million dollars in assets. But there are also planners who work with everyday people and may charge a flat rate to help a couple create a financial plan together. To find a fee-only financial planner near you, check out resources like the National Association of Personal Financial Advisors, the Financial Planning Association or the; XY Planning network.
Once the plan is in motion, hold money dates and have fun with it
Creating the plan is just one part of the task. Sticking to the plan is another. You’re not just motivating yourself. There’s another person who has to stick to your budget and family debt plan as well. Track your progress to make sure you’re on the same page. You can do this by setting up money dates.
Consider scheduling these dates once a week until you’re comfortable with your budget. As you get into a financial routine, these dates may be fine to have once per month. Martinez and her husband hold monthly money meetings now to discuss where they are and if any adjustments need to be made.
In the past, they even had healthy competitions or monthly saving themes to make budgeting and repaying debt fun. For example, one month they would focus on hacking their grocery spending and the next month they would move on to another category. Switching up monthly saving themes helped them fight debt fatigue while instilling better saving habits. Budgeting and repaying debt doesn’t have to be tedious. Spice things up with a challenge!
Know that it’s too soon to start talking about money in your relationship. Whether you’re in a new college romance or a long-term committed relationship, it’s important to have serious discussions about money to minimize future conflict.