One of the most important times in your life is when you begin starting your life with your special someone. Bringing friends and family together for a wedding is exciting and a time to celebrate. It is also a time to discuss finances with your spouse, including how you plan to proceed with financial planning once you are married.
Student loan debt has been a major component in this discussion because of its magnitude and the number of students it affects. While you personally may not have outstanding student loan debt, you may be starting a life and family with someone who does. Here are a few things to keep in mind about how that student loan debt could affect you financially.
Joint or Separate: Finances After Marriage
Student loan debt has grown over the last couple of decades. The average for recent college graduates has been around $30,000, which means many students owe much more than this amount — and will need to pay it back.
When you get married, you have the option to join your pre-marital finances with your spouse. Pre-marital finances include any debts accrued separately before the marriage was recorded. Here are some facts about this process:
- When you join your finances, you decide to combine your income into a single account.
- You also file your taxes jointly as a married couple.
- Unfortunately, student loan payments are determined based upon income taxes, so a higher gross income means higher payments for the foreseeable future.
Some couples opt not to join their finances and instead maintain separate accounts as they did before marriage to maintain their separately accrued bills. If this was working before the union, many see no reason to disrupt the method. Both accounts are property of the marriage, but give each individual a responsibility to pay bills like student loans and other obligations.
Do I Inherit My Spouse’s Debt?
Once married, you, as a couple, inherit each other’s debts even if you maintain separate accounts. That means:
- In most states, this type of debt becomes community property in the marriage.
- Student loan debt can be considered part of your obligation to pay in the event of a divorce, even if you did not accrue it.
- While that is not your marriage goal, you could be responsible for a debt you did not create.
- If you live in a state that does not require you to be responsible for this student loan debt, you will still feel its impact financially on your overall finances within your marriage.
All of this must be kept in mind as you plan for your joint future: Having to pay for and manage student loan debt will affect your overall savings, retirement, and lifestyle as a couple — or as a family, if you have children — until these loans are repaid.
Manage Your Debt With These Tips
If the person you have chosen to spend the rest of your life with does have a significant amount of student loan debt, there are several ways you can work together to manage and overcome this obstacle to achieve financial independence. Here are a few ideas:
1. Plan to Reduce the Overall Debt
Have a financial conversation with your spouse and develop a plan to pay down the student loan debt as soon as you can. It should be treated as importantly as your mortgage in terms of priority. This is because the longer you carry around student loan debt, the more impact it has on your overall savings:
- The interest on student loans continues to generate the longer you’re paying on them.
- That means you can pay hundreds more in interest than your spouse borrowed.
- You reduce these costs when you pay down the debt sooner.
Deciding not to pay this debt will not make it go away. In fact, doing so will negatively affect your spouse’s credit, which could impact your ability to purchase a home, vehicle, or commercial loans if you are looking to embark on your own business.
2. Take Advantage of Payment Plans
Your spouse’s payments for student loans can be based on an income-driven plan. If you plan to file your taxes jointly once you are married, both incomes will be considered when calculating the payment. The amount will not go beyond a certain percentage of your income, however, so you can easily plan the rest of your bills and monthly savings around this number.
If you would like to pay more each month to reduce the debt sooner, you and your spouse can add a principal payment in addition to the monthly payment, which reduces the interest on the student loans.
3. Live Within Your Means
When you are paying off debt with your spouse, you have to make sacrifices. This means you may have to sacrifice some things that you enjoy in your life, like downgrading your vehicles to a more affordable line instead of a luxury option. Reducing the number of times you eat out throughout the week and even cutting back on travel until you can pay off your debts are also ways to reduce your marriage expenses and debts.
4. Seek Financial Advisement
Wealth management and working with a financial advisor is the best way you and your spouse can pursue financial freedom and overcome student loan debt. A wealth advisor makes a career out of assisting others like you overcome their debts and properly manage their money to save and live their best life as soon as they can.
If you are looking for help with wealth management and need assistance in developing an investment strategy for your finances, our team at Bogart Wealth have decades of experience in financial planning and investment management. Contact us today for a consultation to see how we can help you and your spouse with debt management.