Today, as many Americans still struggle with massive debt loads, younger adults might be disproportionately affected by the problem. As a consequence, when two people with significant outstanding balances of their own get married, their issues might become even more exacerbated.
The average young person leaves college with tens of thousands of dollars in debt spread across student and auto loans as well as credit cards, and those who enter into a marriage within a few years of that time might simply be compounding their problems making all their payments on time and in full, according to a report from the Wall Street Journal. This may be particularly difficult to handle if the newlyweds did not have a frank discussion about where they stand financially and what their plans for the future are prior to their nuptials.
Knowing the difference
While many people may not think about it, there are very different rules for racking up debt prior to and following marriage, and knowing them can make a massive difference in a new family's finances, the report said. For instance, between those student and auto loans and credit card obligations, spouses may enter their marriages with their own balances and then want to add more, such as through a mortgage. However, the obligations each has when it comes to dealing with each individual account will vary.
While couples can certainly work together to collectively pay down the debts they established individually, depending on their local laws, they may have no obligation to do so unless they are listed as co-signers on each other’s accounts, the report said. However, it may be a good idea to make sure both partners are up to date on their debt payments and keeping balances low on credit cards, as these two factors alone make up 65 percent of a person's credit rating.
The impact it has
When two people enter into a loan agreement as co-signers, as most married couples do when they get mortgages and some other lines of credit, it's important that both have the healthiest credit ratings possible, the report said. As with any other potential loan, their would-be lender will run a credit check on both parties, and use that information to not only determine whether they actually qualify for the financing, but also to set the terms of the agreement when they are approved.
This means that if one partner in a marriage has a credit rating that's lagging behind the other's, especially if it's by a significant margin, there can be some complications in obtaining the desired financing, the report said. Further, it can also make the credit they receive if approved far more expensive to handle on a monthly basis and may therefore have a notable negative effect on their overall finances.
What to do
For all these reasons, it's of the utmost importance that young newlyweds do all they can to make sure they are honest with their partner about the financial realities they face both before and after marriage, and formulate the best possible plans to deal with their debt either together or separately, the report said. This will help both to better understand what they're now facing together, regardless of whether they choose to help each other pay off their individual debts.
"It's not the most exciting date to sit down and talk about your credit cards," Rod Griffin, director of public education at Experian, told the newspaper. "But it's an important one. It'll help you get off on the right foot financially."
During this time it's also a good idea to formulate an overall household budget, the report said. This will help both spouses to fully understand what they can afford to contribute to their debts every month, in addition to what they need for living expenses. If they have anything left over, it might be a good idea to contribute that to outstanding debts as well, or save for a more sizable transaction such as a down payment on a home. Having as complete an understanding as possible about all aspects of current and hoped-for future financial goals will help to inform many major decisions for couples going forward.
Of course, if you're a newlywed or rapidly approaching your wedding date, it's also a good idea for both you and your new spouse to order copies of your credit reports and check them over closely. This may help you to identify any unfair markings that may be dragging down your credit scores, and working with a credit repair law firm may be able help you to remediate the issue and get your credit back on track.