How to Start the Conversation About Debt
Thinking about tying the knot but your fiance has significant student loans? It’s probably in your best interest to learn as much as you can about your partner’s situation before saying “I do.”
It may seem like a huge obstacle at first, but discussing debt with your prospective life partner is imperative to laying the foundation for a solid future.
What If My Future Spouse has Student Loans?
It’s important to know what you may or may not be responsible for when it comes to marital finances. But let’s focus on what you have to watch out for when it comes to student loan debt.
Am I Liable for Pre-Marriage Debt?
In most cases you will never be liable for your spouse’s student loan debt incurred before marriage. Exceptions to the rule include cosigning on your spouse’s student loans or applying for loan refinance after marriage.
Depending on how you choose to set up your marital finances, you can still choose to take on some responsibility for your spouse’s debt repayment.
Income-Driven Plan Payments Can Change
For single people applying for an income-driven repayment (IDR) plan, there is just their income to factor into payment calculation. However, marriage can complicate this simple process.
For one, the total household income will increase. Since IDRs look at taxes to determine monthly payment amounts, a higher household income would result in a higher loan payment.
You might think filing taxes separately would help you avoid this, it would. But you would miss out on the benefits of filing joint taxes, which include the student loan interest tax deduction among other tax breaks and credits. It would be a joint decision on whether to have a lower monthly payment or to deal with the higher payment and keep the benefits.
Loan Refinance
If your spouse is paying too much in interest, you can consider consolidating all of your spouse’s loans to get a better interest rate. You can also become a cosigner on the loan if you have a better credit score to bring the interest rate even lower.
Do take note that cosigning also comes with the responsibility to pay if your spouse fails to make payments on the loan.
Impact On Your Financial Future
It would be wise to set goals for your financial future, as having significant debt such as student loans can become a setback. You may have milestones to reach, such as buying real estate or starting a family. It can get difficult making student loan payments in addition to these large expenses.
The both of you would have to be realistic in setting financial boundaries for yourselves. It will go a long way in avoiding future stress in your relationship.
How It Can Affect Your Credit Score
At marriage, your credit scores will still be kept separate. As long as your spouse makes consistent payments on their student loans, their credit score might actually improve.
The both of you would have to stay on top of it, if you want to be approved for future loans.
Having This Conversation Is Essential
Whether you or your spouse has the student loan debt, it is important to talk about it before marriage. It is not the easiest of topics to talk about, but it is better to be transparent about any type of debt.
Rather than leave it till tax season, have this conversation early on and decide whether to tackle the debt together or separately. Have a solid plan going forward, your marriage will thank you for it. And as always, the Financial Helpers are only a phone call away if you need assistance.
