Don’t Let Debt Ruin Your Relationship
Sour economies don’t just destroy jobs and wealth. They can tear apart marriages, often because of the debt that couples accumulate and, when times get tough, have trouble repaying. In this adaptation from his new book “Financially Ever After: The Couples’ Guide to Managing Money,” Wall Street Journal reporter Jeff D. Opdyke describes the challenges couples face when dealing with debt and how they can begin to address them.
If there’s a money matter more likely to cause conflict for couples — maybe even divorce — it’s debt.
Being in love and in hock is no way to go through a marriage, because being in hock might just put the kibosh on the love, particularly in the early years. Debt, it turns out, is a leading cause of family strife during the first few years of marriage, according to Creighton University’s Center for Marriage and Family.
That doesn’t mean debt will necessarily send you to divorce court, but it does mean the accumulation of debt can undermine your marriage and cause the type of discord that can dissolve a marriage. That’s of particular concern these days, as families struggle with the worst economy since the Great Depression. Fadi Baradihi, president of the Institute for Divorce Financial Analysts — a group of financial planners who help couples plan the finances of a divorce — says that demand for the institute’s services is up 15% in the past year. Couples “contemplate divorce more than ever” when good economies turn sour and finances grow strained, he says. The result of all this financial stress: marital conflict that can blow out of control.
To deal with debt effectively requires some effort from you and your partner. The goal is to determine how you employ debt in your life together, the rules by which you each use debt separately, and your plan to pay it off so that it never has the chance to corrode your relationship.
What’s your debt philosophy? For couples who regularly struggle managing their debt, start by formulating a debt philosophy. This is nothing more complicated than devising a financial mission statement, the structural foundation of your family’s beliefs when it comes to debt. It needn’t be profound, just something simple like the following:
“We agree to live below our means, not to pursue material wants without the money to afford them, never to use emergency savings for consumer purchases and to take on debt only when it benefits the family’s long-term goals or needs.”
Now, don’t just adopt the philosophy above and call it done. Every family has its own specific needs, so fashion your own philosophy together. You’ll want to answers questions such as:
- Will we pay cash for everyday purchases or maintain a monthly balance on a credit card?
- Will we pay off our credit card every month, or are we comfortable carrying a balance — and, if so, how big?
- Will we refrain from spending more than our monthly income, or can we occasionally overspend to afford a big purchase? With large purchases, how soon will we pay them off?
- Will our savings account remain untouchable except for emergencies, or can we dip into it to pay for certain expenses?
- What defines an emergency expense?
Couples on the same page should have little trouble designing a debt philosophy. Couples with sharply divergent views are far more likely to suffer problems. For them, success comes through compromise. For instance, when deciding whether savings remain untouchable except for emergencies, one might answer “absolutely,” while the other says, “no way.” Split the difference by, possibly, creating an agreed-upon level below which the savings account will not be allowed to fall outside of a true emergency. Or agree on the amount that can occasionally be spent for purchases that benefit the family broadly. But you must define “occasionally” and “beneficial.”
One example: Emergency savings could kick in up to $1,000 to help cover the costs of a vacation the family’s monthly finances can’t cover alone — so long as it doesn’t push the account below some minimum level.
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.