Marriage is a major life milestone, and we all want to start this phase of life on the right financial foot. Diverging ideas about credit and debt can dull the honeymoon period, and most of us intuitively know that financial discord can be the demise of an otherwise great relationship.
In a Credit Sesame poll conducted earlier this year, 72 percent of Americans said they wouldn’t even consider tying the knot with someone who had a low credit score and didn’t take an interest in improving it.
The best time to start talking about finances is before you tie the knot, but it’s never too late to start. Communication can help you avoid money fights that dampen your wedded bliss.
The bigger challenge for many couples, however, is coming up with a plan for managing finances while also considering individual needs and goals. Whether you’re a newlywed or you’ve been married for a while, here’s a roadmap for shaping your financial plan as a team.
1. Compare your money attitudes
Some people are spenders; others are savers. When a saver and a spender come together in a marriage, conflict can brew.
Take stock of your spending and saving styles and compare them to your spouse’s for valuable insight into how to handle your finances as a couple.
Talk about the role each of you will play in managing your money.
- Will one of you be responsible to pay the bills each month?
- Will you each contribute an equal amount of money toward household bills or will you divvy expenses up differently?
- At what point do you want to get input or approval from your spouse before making a big purchase?
Discuss your short and long-term goals and how marriage may affect them.
- If you want to save $1 million for retirement, will you still be able to maintain your current savings rate after you’re married?
- How will you work together to save for a home?
Answers will help the two of you create a framework for tackling day-to-day issues related to credit and debt.
2. Get up close and personal with your credit scores
Your credit score. It’s a snapshot of how responsible you are with credit products.
Extenuating circumstances notwithstanding, to a lender a good credit score means you pay your bills on time and you’re likely to continue to do that in the future.
A low score, on the other hand, suggests that you either don’t have a firm grip on finances or you don’t have ample experience using credit.
When one spouse has a poor credit score it’s harder to qualify together for loans or lines of credit, including a mortgage.
Find out where your beloved stands. Definitely don’t wait until it’s time to apply for that home loan, when a nasty surprise can derail your dream.
Furthermore, knowing where your spouse’s credit stands can give you some insight into his or her financial past, and how that past might impact your financial goals.
A bad credit score is not in itself a reason to dump someone. Tens of millions of Americans have average, fair or poor credit. What’s more important is the reason for the score, and the actions your partner is taking to correct course.
If you’re not already Credit Sesame members, you and your spouse can each create a free account to see your free credit score, updated monthly, and a credit report card based on the data in your TransUnion credit report.
What if your partner doesn’t want to share the details?
Easy answer. Be wary of making a lifetime commitment to someone who can’t or won’t open up to you, reveal vulnerabilities, or get on board with a joint plan for your financial future. At some point, the cards need to be laid on the table.
Transparency is important in all things in a marriage but especially so where money is concerned. Money issues are a leading cause of divorce in this country.
3. Lay your debts on the line
Clear the air on debt. The way you approach this depends on whether one or both of you is bringing debt into the marriage, how much and what you both think is the best way to deal with it.
Many couples choose to tackle past individual debt together. That’s for you two to decide. But first you need to know where you stand.
Again, this is where the Credit Sesame dashboard can come in handy.
When you log in to your account, you can see at a glance
- How much debt you have
- The types of debt you have
- Who you owe
- Account balances
- How much of your income goes to debt repayment each month
Use this information to create a debt repayment plan that works for both of you.
For example, let’s say you’ve got $100,000 in student loans but your new spouse is debt-free. Does getting married change your expectations about how the loans will be paid?
- Will you expect your spouse to chip in and help out?
- If your spouse has the debt, are you willing to help pay it so that you can reach joint goals faster?
You can still make things work even if either of you doesn’t feel comfortable taking on the other’s past debt. But that may mean that you have to take a closer look at your finances to come up with a fair compromise. For instance, if you’re bogged down by debt and your spouse earns a higher income, maybe you can pay a smaller percentage of the monthly household expenses.
Use the Credit Sesame dashboard to create a plan for paying off your debt. If you’ve got credit card balances at high interest rates, check the My Recommendations tab for balance transfer credit card offers. Look for recommendations for mortgages, refinance loans and personal loans for consolidating debt. The less interest you pay, the faster you’ll put a dent in what you owe.
4. Consider your credit options as a couple
Think about how you’re going to use credit as a couple. Your credit reports won’t merge when you get married but any loans or credit card accounts in both names will show up on both reports.
The activity for those joint accounts affects both spouses’ credit scores, and both account holders are equally responsible for repaying the debt no matter who agrees to be responsible for paying the bill.
Adding one of you as an authorized user on the other’s account has advantages and drawbacks. As an authorized user, you’re not liable for the debt, but your credit is affected by the primary card holder’s management of the account. If the primary card holder pays late or maxes out the card’s limit, the authorized user’s credit suffers.
Deciding whether to get joint or separate accounts depends on personal preference. Financial implications aside, if one spouse has great credit and the other has poor credit, the poor credit spouse can benefit from piggybacking off the other’s good credit behaviors.
5. Start practicing good credit habits now, and stay the course
Work towards better credit as a couple.
The most important thing both of you can do is pay your bills on time. If one or both of you has struggled with late payments in the past, create a system for paying bills to ensure that you don’t lag behind in the future. Schedule automatic payments from your bank account, set up payment reminders or use a bill pay app.
Next, work to pay down debt, and keep new debt to a minimum (zero if possible). Credit utilization — how much of your available credit you use — is the second most important factor affecting your credit score. Refinance or consolidate your high interest debt and look for balance transfer offers to make your debt less expensive and get on a faster road to payoff.
Apply sparingly for new credit. Each credit inquiry shows up on your credit report, including inquiries for joint credit. Inquiries can knock a few points off your score.
Keep old accounts open. An older average account age helps you achieve a better credit score.
Managing credit and debt as a couple isn’t always easy. If you haven’t already started the credit and debt discussion with your spouse, do it today. Most importantly, keep the conversation going on a regular basis. Check in on your budget and progress monthly or more often since your credit and debt situation evolves.