Credit cards and marriage: What happens when you marry into debt?
Although your wedding vows involve you agreeing to stick it out together “for richer or for poorer,” does that mean you need to take on your new spouse’s credit card debt when you get married?
“If your spouse has a poor credit history or a mountain of debt to deal with, there is a common assumption that once you are married, you take on these debt problems too. That’s not the case,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
Even after marriage, any debt that you have in your own name will remain separate from your spouse’s and vice versa. The same is applied to your credit history. However, it is important to note that any joint debt taken out going forward will be shared and will impact both of your credit scores.
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Money management is a major cause of disagreement in relationships and for many, ultimately divorce. That’s why you should address this right from the beginning.
Marriage and credit history
You may be concerned that if you change your name when you get married, you will either be starting over from scratch with your credit history, which would lower your credit score.
Rest assured that your credit history doesn’t change, just because your name does. Your credit history is actually attached to your social insurance number, so it will stay with you, even if you change your name.
Applying for credit
Although your spouse’s poor credit history won’t bring your credit score down, it will be a concern if you apply jointly for debt. For example, if you intend to purchase a home and take out the mortgage in both of your names, your spouse’s poor credit and existing debt load may be a barrier to qualifying for the mortgage.
You might get denied for the mortgage outright or you may be subject to higher interest rates, which is often a condition if you have poor credit.
One option is to apply for credit in your name only. A major drawback with that approach is that you can rely only on your income to qualify, even if your spouse will contribute to debt payments with their income.
It’s also important to note that if you take out debt only in your name, your spouse isn’t legally obligated to pay it. Your spouse is only responsible for debt payments when they have co-signed as a joint debtor for the credit.
It’s time to lay all the cards on the table. Start with full disclosure of all debt. Hopefully, you and your spouse have revealed all outstanding debt prior to marriage, but if not, now is the time to do it. Putting everything out on the table will help you to know exactly what you are up against and how to pay it down.
Commit to honesty and frequent communication around money. Set up rules around how and when debt will be used going forward.
Discuss how and why the debt occurred
It is essential to determine the reason behind your spouse’s debt accumulation and/or bad credit. Did they not have a budget, so routinely spent beyond their means? Were they disorganized and simply didn’t pay bills on time? Is there a more serious issue at hand, like substance abuse, gambling or retail therapy addiction?
Did your spouse accumulate debt as a result of a life event (like a job loss, injury or illness) and didn’t have savings to cover expenses?
Once you recognize the reason that the debt has accumulated, you can apply a solution. For instance, if your spouse had a gambling problem, you can help them to seek treatment. If your spouse got into debt for spending beyond their means, you can commit as a couple to living a cash-only lifestyle as your budget allows.
If the reason behind the debt was relying on credit to cover expenses after a life event, make emergency savings a priority as a couple.
Should you help your spouse pay down their debt?
There are pros and cons to helping your spouse pay down their debt. On the upside, if you combine forces, you will knock off that debt more quickly, putting you in a better financial situation as a couple. Don’t forget the cost of carrying debt, especially if it is substantial, will take money away from your household budget every month.
On the downside, it could mean less financial independence, which is very important for some couples.
“There are some other things to consider as well if you are thinking about paying off your spouse’s debt. It isn’t a good idea if it is going to put you into debt yourself in order to help them out. Also, if your own credit could be in jeopardy (i.e. if you agree to co-sign on a consolidation loan) that might not be a good plan either,” says Schwartz.
There are other ways to help your spouse reduce their debt load without you footing the bill. Suggest that your spouse aggressively pay down their debt by debt consolidation or through a debt relief program. Your spouse should make small purchases every month on their credit card and pay them in full every time in order to repair damaged credit.
Set up a detailed household budget that lists expenses, as well as who is responsible for paying what, or if it is a joint expense. Determine what some of your goals are as a couple (i.e. buy a house, pay down debt, save for retirement, etc.). Once your debt load as a couple is reduced or removed, you can move towards accomplishing these goals.
Schedule a meeting every month to discuss money management and to make any changes to your budget and/or debt repayment plans.
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