With This Debt, I Thee Wed

By JEFF D. OPDYKE

PAGE 2

How Couples Should Handle Debt

Don't massage your debt philosophy just because it doesn't fit your needs at the moment. Remember, you designed this in a sober moment, so don't renege when you're drunk on the thought of spending on some particular want.

How will you use debt? Couples today routinely enter marriage already laden with debt -- student loans, car leases, credit cards. In a recent survey of seven major economies, PayPal, eBay's online-payment service, found that American couples typically enter into their relationships with more debt than their foreign counterparts. This is akin to arriving on your wedding day with a negative dowry.

These premarital obligations necessarily affect you both, since the mandatory debt payments will reduce the funds available for other purposes. That argues for partners spending time talking about debt before and, particularly, after the wedding.

You might start such a conversation by planning how you and your partner will pay off debt amassed prior to marriage. Is that the sole responsibility of the debtor, or will you pay it off from the family's joint income?

Next: Where do debt and savings rank among your priorities? Do you want to pay off all debt before building a savings cushion? Or will you divert some of that money into a savings account -- thereby holding on to your debt longer -- to build a financial cushion for an emergency?

The idea here is that you must proactively engage your debt, or risk that it consumes your finances and destabilizes your marriage. That's the insidious side effect of debt: If you let it, debt builds over time into an obligation so large that you lose perspective and, ultimately, control of your financial life.

Too many couples rely on debt -- particularly credit cards -- to supplement their income. They see a credit card with a limit of, say, $15,000 as a funding mechanism for a lifestyle beyond their means. And because their paychecks can't support this lifestyle to begin with, the debt grows increasingly larger. At some point, it is large enough that the next incremental expense seems irrelevant.

For instance, it's Friday night and you want to eat out, and you're choosing between the pricey sushi joint you're craving and the much cheaper café. You're carrying a combined $25,000 on two or more credit cards, and you think to yourself, "What difference is another $100?"

That's the beginning of the end.

You're digging a deeper hole because you think there's no way out of the hole to begin with. As the debt grows, though, so will tension in your marriage, because just about every discretionary dollar you earn will be earmarked for some creditor. You and your spouse will feel increasingly incapable of living your life and end up mad at one another. This isn't what you signed up for.

Good debt vs. bad debt. Debt itself is a just a tool that, if used properly, can help you live a better life.

But there's good debt and bad debt, and the goal of any couple is to use good debt to improve the family's life, while limiting the ability of bad debt to destroy that life.

Good debt: a mortgage on an affordable house; a loan on an affordable car; student loans to pay for a college degree. In effect, good debt improves your life permanently.

Bad debt: auto leases, since they generally finance cars you otherwise can't afford; home-equity loans or lines of credit, which too often fund discretionary purchases; any consumer expenses for which you allow the balance to roll over from month to month. In effect, bad debt only improves your lifestyle temporarily.

In an age when debt is so easy to obtain, accumulating too much bad debt is all too easy.

For many people, that accumulation happens because they lose sight of their actual finances, or fail to accept their boundaries. "So what if I only make $30,000 a year?" you might think. "I deserve a BMW convertible because I work hard and the car will make me feel better about myself; I'll cut spending elsewhere to afford the monthly lease payments."

That's the addictive nature of bad debt: It alters your mood by allowing you to spend to make yourself happy. Its effects are instantaneous, and you keep using it because debt lets you have what you want now, evoking feelings of contentment, though such feelings are always fleeting.

But debt also has the power ultimately to hack apart a relationship, leaving a trail of financial destruction and obligations you're both responsible for.

Of course, it doesn't have to be this way. You are in control of the credit card in your wallet. You're the one who says no to the car you can't afford. You're the one who decides it's wiser to leave the equity in your home instead of drawing it out for unnecessary indulgences.

The savviest couples recognize that debt should serve only one purpose: to help you and your spouse build a better life together -- not a better lifestyle.

Adapted from "Financially Ever After: The Couples' Guide to Managing Money," by Jeff D. Opdyke. Copyright 2009 by Jeff D. Opdyke. Published by Collins Business, an imprint of HarperCollins Publishers.

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Related Pages:
Personal Financial Goals (by The Vermont Agency)