Paying off debt — specifically high-interest credit card debt — should be a goal for anyone looking to get their financial house in order. But what happens when that debt isn’t yours, and instead is in the name of your spouse or partner?
When we get into a relationship, most of us expect to adopt a “what’s mine is yours” mentality — though debt often doesn’t always factor into that equation.
Some couples might hold off on getting married until each partner’s respective debts are paid. This avoids any awkward financial arrangements and may make long-term financial planning and decision-making easier.
Others, however, might opt to help clear their partner’s debt, which can allow the couple to start their lives together with a clean financial slate.
“It doesn’t make sense for one spouse to have cash sitting in a savings account, while the other is paying 18% interest on their consumer debt,” says Melissa Leong, author of the award-winning finance guide, Happy Go Money. Constantly paying hefty interest payments will prevent the couple from building up their savings, after all.
An honest discussion
Money is a highly charged topic, and can represent many different things to people, including power, respect and fairness.
Research shows that married couples who have conflicts about financial matters are less likely to stay together. According to a study out of Utah State University, every 10-fold increase in consumer debt increased the odds of divorce by 7%.
Leong says that while the math suggests it’s logical to prioritize paying off high-interest consumer debt, this has to begin with an honest discussion between partners. And that talk should happen sooner rather than later.
“How you treat different types of debt depends on your opinions about them,” Leong says. “You might believe in the value of so-called good debt, such as a student loan, and happily pay off your future husband’s university debts. On the other hand, you might refuse to wipe out his credit card balance from his recent trip to Las Vegas.”
If you decide to bail your partner out of debt, that’s your decision. But just remember that it may not solve the core issue: What behaviour contributed to that debt, and will that debt simply be racked up again?
Whatever your thoughts or expectations are around debt, make them clear you should be clear about them to your partner and take the time to explain where you’re coming from. Establishing a common financial goal, such as a vacation or a new home, should help get both parties on the same page.
If a discussion can’t be had without an argument, consider bringing in a third party, such as a financial advisor. This person can assume the role of the “bad guy” if anything contentious arises, help direct the conversation, and raise important issues.
For a couple that’s dating, Leong suggests asking your partner hypothetical questions like, “You’re given $5,000. Do you spend it on a vacation or put it into your mortgage?” and “How did your family handle debt?”
Learning to share
For those couples who choose to adopt a “what’s mine is mine” attitude, it’s a good idea to still pool at least some of their financial resources.
For Leong and her husband, money for debt repayment, their children’s education, and other savings goals are taken from a joint account. Meanwhile, each of them get a monthly transfer of spending money from their shared bank account into their own respective personal accounts.
“Separate accounts provide valuable independence and freedom,” Leong says.
“This way, I don’t ask why he’s buying toys for his man cave, and he doesn’t ask why I need 10 pairs of similar-looking jeans.”