Till Debt Do Us Part
Don’t deny it.
The first step in overcoming your cash-flow problem is recognizing that you have one. “Couples need to understand how big the debt really is, and look at that as a percentage of their income,” says Jeff Kostis, a certified financial planner and president of JK Planning in Chicago. They should also understand their debt is not going to be paid off in six months or a year, he adds. “They’re going to have to work at it and be serious about it for quite a while. That really needs to be the focus of their financial matters.”
You’ve got a problem
Budget timeThe next step is creating a budget that incorporates debt payments. Prem Malik, a financial advisor at Queensbury Securities in Toronto, says to create a debts section and split it into columns for the mortgage, credit cards and other liabilities. “Your credit card should be the first area you pay off because that has a very serious interest rate,” Malik says. It’s also important to analyze your everyday expenses. “What I find is that most people, especially couples who are just getting married, really don’t have an idea about where the money goes,” says Kostis. “Until you understand where the money is going, you can’t do much about it.” And doing something about it is essential — Kostis says couples in financial trouble must accept that they will have to make a lifestyle change. That doesn’t necessarily mean becoming pennypinchers. Small changes such as brownbagging lunches, forgoing your daily Starbucks coffee or buying a public-transit pass rather than driving to work can save you thousands of dollars per year. Cancelling your landline and using just your mobile, as well as getting rid of cable and watching TV shows online, are some other ways to keep your bank account healthy.
The credit card myth:
Easy access to numerous credit cards is one of the biggest dangers for young couples with a penchant for spending. However, it’s a myth that you should cut up all your credit cards. Keep one, says Malik. Here’s why: “If you’re booking an air ticket, you can’t pay cash. There are other instances where you really need to use a card. For that reason, and to establish a credit history, it’s a good idea to have one.”
To cut or not to cut
Talk about it
To help curb spending, talk to a financial advisor or family members about your financial problems. If you’re close to your parents, let them know you’re trying to get out of debt and therefore you can’t afford to host parties or spend a lot of money on gifts, Kostis says. “Then you don’t feel as much pressure to do things that you can’t afford in the first place,” he explains. It also gives you a greater sense of accountability. “After that kind of discussion, if you do something completely out of whack and you tell them, they’re going to call you out on it and say, ‘You said you were trying to save money! Why would you go buy X?’”
Marriage = TeamBesides altering your spending habits, it’s imperative to change your mindset about money management once you get married. successful at paying off their debt. Otherwise, they’re likely to think, ‘Oh, I can still go shopping because I have $30,000 in my account,’ but they’re less likely to do that if their money’s in the joint account,” he says.
In addition to taking joint responsibility for your financial position you should manage household finances together. That may mean splitting up tasks so that one partner pays the bills every week and the other checks the account balance to make sure you’re both on track, suggests Kostis. Communication is key. Couples should set aside about 20 minutes every week to talk about their finances. It’s surprising that we can talk openly about sex, but money talk makes us bashful. And remember: Be honest, says Malik, “There should be no hidden agendas.”
Discuss priorities and set goals with your partner. If having children is at the top of your list, talk about how you intend to save for a baby. “It’s expensive to care for kids. It’s a financial decision and that’s something that’s not really thought about by couples, especially young couples,” Kostis says. The last thing you want to do is go into even more debt paying for baby items.
Be smartFinally, although it may seem like an easy way out, our advisors caution against consolidating loans through a bank or debt management company as it can have a negative effect on your credit report and there’s a longer payback period. Instead, find a solution with a financial advisor.
Most importantly, when you’ve finally overcome your financial hurdles, make sure to celebrate! You’ve earned it.
BY SANAM ISLAM / PUBLISHED IN THE 9TH ANNIVERSARY ISSUE / JANUARY 2012