What should we do about my debt versus/plus his savings if we get married and move across the country together?
March 1, 2010 3:43 PM Subscribe
What should we do about my debt versus/plus his savings if we get married and move across the country together?
He's finishing his PhD this year and will most likely be taking a postdoc position in the Midwest sometime later this year. I adore him and would be miserable without him, so we'll probably get married, I'll leave my amazing, wonderful, but slightly under-paying job, and take up the "following spouse" role, trying to find a decent job whereever we end up. I feel pretty confident this would be the right decision, so this question isn't really about that.
As is the way things go sometimes, he has a sizeable inheritance ($50-60k) invested, that we're planning to save for something big, like a down payment on a house someday. He also has $15-17k in the bank as an emergency fund, that we can dip into if I have a hard time finding a job in the new city, or if one of us is unememployed. He has no debt of any kind. Woo! Great, right?
I put myself through college and graduate school, and have been living on my own since I was 16. As a pretty direct result of this, I have $9200 in credit card debt (split over three cards, with interest rates ranging from a 6% balance transfer rate to 14% for the majority of it), and $43k in student loan debt (split over two loans, $10k on a 3% Direct consolidation loan, and the rest on a 6% unsubsidized Stafford loan).
From a purely financial standpoint, what would be the best way for us to handle this, as a couple? I think we'd be aiming to maximize our quality-of-life while we're young and just starting out, while still being fiscally responsible and not squandering our long-term financial health. There is obviously a bit of discomfort, at least on my part, at this huge debt disparity, especially since I'll be sacrificing my career in favor of his to some extent. I think we'll be able to work through that together though, so I'm more curious what the hivemind thinks would be the best course of action is, as far as making payments on the debt gradually versus maintaing our investments. Advice from MeFi finance wizards?
(Anonymous because I don't want detailed personal finance info connected to my profile, but I'll be happy to take emails at i.have.debts@gmail.com and answer follow-ups through the mods)
He's finishing his PhD this year and will most likely be taking a postdoc position in the Midwest sometime later this year. I adore him and would be miserable without him, so we'll probably get married, I'll leave my amazing, wonderful, but slightly under-paying job, and take up the "following spouse" role, trying to find a decent job whereever we end up. I feel pretty confident this would be the right decision, so this question isn't really about that.
As is the way things go sometimes, he has a sizeable inheritance ($50-60k) invested, that we're planning to save for something big, like a down payment on a house someday. He also has $15-17k in the bank as an emergency fund, that we can dip into if I have a hard time finding a job in the new city, or if one of us is unememployed. He has no debt of any kind. Woo! Great, right?
I put myself through college and graduate school, and have been living on my own since I was 16. As a pretty direct result of this, I have $9200 in credit card debt (split over three cards, with interest rates ranging from a 6% balance transfer rate to 14% for the majority of it), and $43k in student loan debt (split over two loans, $10k on a 3% Direct consolidation loan, and the rest on a 6% unsubsidized Stafford loan).
From a purely financial standpoint, what would be the best way for us to handle this, as a couple? I think we'd be aiming to maximize our quality-of-life while we're young and just starting out, while still being fiscally responsible and not squandering our long-term financial health. There is obviously a bit of discomfort, at least on my part, at this huge debt disparity, especially since I'll be sacrificing my career in favor of his to some extent. I think we'll be able to work through that together though, so I'm more curious what the hivemind thinks would be the best course of action is, as far as making payments on the debt gradually versus maintaing our investments. Advice from MeFi finance wizards?
(Anonymous because I don't want detailed personal finance info connected to my profile, but I'll be happy to take emails at i.have.debts@gmail.com and answer follow-ups through the mods)
Pay off the credit card debt. That's bad debt. (And generally high-rate debt.)
The student loan debt is usually considered "good" debt, interest on it is tax-deductible, and payments are generally fairly small. That one is less urgent.
One idea you might try is to decide (as a couple) to live on one salary (I'll assume his). All bills and expenses come out of that salary. The second salary -- in this case, yours -- can go entirely towards paying off your debt. Or, half to paying off your debt, half to building up savings you can spend on a vacation, or a new car, or a big Christmas, or a wedding for that matter. That gives you a play for paying off -- or at least paying down -- the debt in a reasonable period of time; it puts you in a good position in terms of employment setbacks in an uncertain economy, since you'll be USED to living on one salary; and after a while it would really let you build up money in the bank -- for decorating that house, or summering in Tahiti, or sending futurespawn to college.
posted by Eyebrows McGee at 4:20 PM on March 1, 2010 [1 favorite]
The student loan debt is usually considered "good" debt, interest on it is tax-deductible, and payments are generally fairly small. That one is less urgent.
One idea you might try is to decide (as a couple) to live on one salary (I'll assume his). All bills and expenses come out of that salary. The second salary -- in this case, yours -- can go entirely towards paying off your debt. Or, half to paying off your debt, half to building up savings you can spend on a vacation, or a new car, or a big Christmas, or a wedding for that matter. That gives you a play for paying off -- or at least paying down -- the debt in a reasonable period of time; it puts you in a good position in terms of employment setbacks in an uncertain economy, since you'll be USED to living on one salary; and after a while it would really let you build up money in the bank -- for decorating that house, or summering in Tahiti, or sending futurespawn to college.
posted by Eyebrows McGee at 4:20 PM on March 1, 2010 [1 favorite]
I am in a bizarrely similar financial situation with my husband (really--are you me?), except without the credit card debt. We're planning on paying off the highest interest rate loans (anything that will put us in a deficit paying interest on vs. a savings account or careful investment). I'm interested in seeing what else is suggested here.
posted by PhoBWanKenobi at 4:42 PM on March 1, 2010
posted by PhoBWanKenobi at 4:42 PM on March 1, 2010
Get an extra job and pay off the credit card debt immediately. Once you find a job where your fiance will be working, use your earnings to start paying off your student loans and live on and continue to save parts of his salary.
posted by anniecat at 5:01 PM on March 1, 2010
posted by anniecat at 5:01 PM on March 1, 2010
The first thing you need to figure out is how much (little) the two of you can comfortably live on in this new location. Can you live on just his salary? It sounds like you don't think so. If not, what part of your future salary will be needed to make up the difference. Let us hope it is not all of it. Decide to live on the pre-determined amount. Use the "emergency fund" for support of a reduced standard of living until you have a job. Once you have a job, use the surplus from your employment solely to pay off the highest interest rate credit card(s). Then move on to the lower rate cards. Don't charge anything that does not involve an actual emergency until the cards are fully paid off.
Once you have mastered the above, reconsider your financial position. Do you still have all of the "emergency fund" left? If so, consider using half of it to pay down the college loans. Use the rest of your surplus income for college debt pay-down.
Sound boring and austere? Good. You'll be so happy when the first kids come along that this debt is no longer hanging over your head.
posted by Old Geezer at 5:14 PM on March 1, 2010
Once you have mastered the above, reconsider your financial position. Do you still have all of the "emergency fund" left? If so, consider using half of it to pay down the college loans. Use the rest of your surplus income for college debt pay-down.
Sound boring and austere? Good. You'll be so happy when the first kids come along that this debt is no longer hanging over your head.
posted by Old Geezer at 5:14 PM on March 1, 2010
Discuss with your spouse.
Set up a pre-nuptual agreement for worst-case scenarios - this need not be seen as a bad thing. Not all marriages work.
So - lay out in that agreement who gets to pay what, when, how, where, should you split up within X years - whatever deal is comfortable to you both... but put down *something*.
Then - as for the financial end of things - once married, you are a couple. Treat your finances, especially your debts, as such. Pay off your debts. Plan together, work together, and communicate well.
Pay of all interest-bearing debt ASAP so that you can put your hard-earned money, as a couple, into investments rather than interest.
posted by TravellingDen at 5:41 PM on March 1, 2010 [1 favorite]
Set up a pre-nuptual agreement for worst-case scenarios - this need not be seen as a bad thing. Not all marriages work.
So - lay out in that agreement who gets to pay what, when, how, where, should you split up within X years - whatever deal is comfortable to you both... but put down *something*.
Then - as for the financial end of things - once married, you are a couple. Treat your finances, especially your debts, as such. Pay off your debts. Plan together, work together, and communicate well.
Pay of all interest-bearing debt ASAP so that you can put your hard-earned money, as a couple, into investments rather than interest.
posted by TravellingDen at 5:41 PM on March 1, 2010 [1 favorite]
Read the Dave Ramsey Baby Steps. I'm a big believer. He's a little retrograde, definitely Christian, but his advice is sound and PRACTICAL.
Get rid of those payments and you start fresh. If your spouse agrees, of course. There will need to be honest conversations about what the debt means, and how combining your money makes sense. Him coming in with the credit, and you coming in with the debt has the painful possibility of creating resentment somewhere. Be mindful of this, it absolutely can cause marital discord.
Now, if the investment is something like a 401k, then you really should not touch it without severe tax penalty, your picture looks like this:
Listen to the Dave Ramsey Podcast for how he handles people in your situation, heck, you might try calling in even. But his baby steps are pretty much the SOP for him. No debt is good debt.
As for the investment, if you can liquidate it without penalty, do it. The rationale is this: would you *borrow money* to get into your investment? If the answer is no, then why are you keeping the investment?
You might want to check DR's thoughts about money and relationships too.
You don't include vehicle status (do you have car loans? other debts? any other assets or property?) -- if you have any of those things the advice stays the same, but basically, liquidate what you don't need and get rid of that debt. It's a hindrance.
Those are my thoughts. Best of luck to you.
posted by artlung at 6:20 PM on March 1, 2010
+ 55 000 + 17 000 - 43 000 - 9 200 -------- + 19 800Assuming the investment can be liquidated without a tax implication, do that. Get rid of the debt, there's no such thing as good debt. No, not student loan debt, it's still a payment.
Get rid of those payments and you start fresh. If your spouse agrees, of course. There will need to be honest conversations about what the debt means, and how combining your money makes sense. Him coming in with the credit, and you coming in with the debt has the painful possibility of creating resentment somewhere. Be mindful of this, it absolutely can cause marital discord.
Now, if the investment is something like a 401k, then you really should not touch it without severe tax penalty, your picture looks like this:
+ 17 000 - 43 000 - 9 200 -------- - 35 200This is a lot less fun, but not insurmountable. Getting out of that debt is important to your well-being altogether.
Listen to the Dave Ramsey Podcast for how he handles people in your situation, heck, you might try calling in even. But his baby steps are pretty much the SOP for him. No debt is good debt.
As for the investment, if you can liquidate it without penalty, do it. The rationale is this: would you *borrow money* to get into your investment? If the answer is no, then why are you keeping the investment?
You might want to check DR's thoughts about money and relationships too.
You don't include vehicle status (do you have car loans? other debts? any other assets or property?) -- if you have any of those things the advice stays the same, but basically, liquidate what you don't need and get rid of that debt. It's a hindrance.
Those are my thoughts. Best of luck to you.
posted by artlung at 6:20 PM on March 1, 2010
FYI, not everyone agrees with Dave Ramsey. I wouldn't liquidate the investments to pay off student loans, but I would to pay off the credit cards.
If you're looking for a lot of discussion on this, you might want to drop by the Get Rich Slowly forums.
posted by jacalata at 6:50 PM on March 1, 2010 [1 favorite]
If you're looking for a lot of discussion on this, you might want to drop by the Get Rich Slowly forums.
posted by jacalata at 6:50 PM on March 1, 2010 [1 favorite]
Be ruthlessly honest with yourself. Was that credit card debt strictly for necessities? Money can be a huge deal breaker in a marriage. You need to go into a longterm partnership truly knowing your own spending behaviors. The way you've written the question leads me to think that you and your partner have very different attitudes toward money and savings.
A 50K inheritance is not really all that sizable. (Not that anyone dropped that kind of nest egg on me, but in the trust fund world it's a pittance.) Also, it's not something you'd necessarily want to liquidate to buy a house. He may not want to liquidate his asset to put it into a shared asset. The emergency fund is a bit lean, especially if you're thinking that it covers two people.
What are you doing to clear the $9,200 in credit card debt? When are you planning to have that debt cleared entirely? Consider his attitudes towards cash cushions and your attitudes toward revolving debt? Have you discussed money in detail? Don't get married until you do.
Every relationship is different which means none of us can tell you what to do. Are you planning to live separate financial lives or are you joint account people? Personally, we're in the camp that says all debts, assets and financial decisions are shared. However, we have pretty similar views of money and savings which makes things much simpler.
The only fair advice is to make sure you and your partner are on the same page with regard to how you view money and assets.
posted by 26.2 at 8:08 PM on March 1, 2010 [1 favorite]
A 50K inheritance is not really all that sizable. (Not that anyone dropped that kind of nest egg on me, but in the trust fund world it's a pittance.) Also, it's not something you'd necessarily want to liquidate to buy a house. He may not want to liquidate his asset to put it into a shared asset. The emergency fund is a bit lean, especially if you're thinking that it covers two people.
What are you doing to clear the $9,200 in credit card debt? When are you planning to have that debt cleared entirely? Consider his attitudes towards cash cushions and your attitudes toward revolving debt? Have you discussed money in detail? Don't get married until you do.
Every relationship is different which means none of us can tell you what to do. Are you planning to live separate financial lives or are you joint account people? Personally, we're in the camp that says all debts, assets and financial decisions are shared. However, we have pretty similar views of money and savings which makes things much simpler.
The only fair advice is to make sure you and your partner are on the same page with regard to how you view money and assets.
posted by 26.2 at 8:08 PM on March 1, 2010 [1 favorite]
Ignore the suggestion for a prenup. The most common use for a prenup is in the second marriage situation, when one spouse has children from the first marriage to protect.
posted by megatherium at 3:55 AM on March 2, 2010
posted by megatherium at 3:55 AM on March 2, 2010
follow-up from the OP
Thanks for the advice so far -- a couple of additional points:posted by jessamyn at 8:27 AM on March 2, 2010
- We're planning not to have children.
- He'll be making around $40k at his new job, which is about what I make now. Looking at our bills, we'd be able to *almost* live on that in Chicago (debt payments not included), where we might be moving to. We'd be able to more easily live on that in Iowa City, another possibility.
- We each already have additional income streams from freelancing/side jobs (he plays music, I do freelance transcription and teach SAT prep), which have been slowly applied to my debt in my case, and applied to activities for the two of us we couldn't otherwise afford, in his case. Hopefully we'll be able to continue the side jobs eventually in a new place, but they can take a while to develop.
I'm no finance wizard, so I'm weighing in mostly to applaud your plan to save the large investment for a down payment on a house. At the risk of getting flamed for even hinting at looking at housing as an investment, now is a particularly good time for this.
posted by troywestfield at 8:57 AM on March 2, 2010
posted by troywestfield at 8:57 AM on March 2, 2010
I see there's disagreement between megatherium and TravellingDen about a prenup. While I'd agree that a written legal prenup document is overkill, I do believe it's emotionally important to have considered some of those questions. If you got married, used his savings to pay all your debts, and then you fell madly in love with a circus performer and left before he'd accumulated new savings, would you owe him his $50k back? What if this all happened years down the road and the savings level was back on track, would that $50k be "paid back"? What if he were the one who left with the circus, could he demand his cash on the way out the door? Is it throroughly not "his cash" any more as soon as you get married? or when you move to Chicago together? How and when will you make that transition? The reason for talking about that kind of thing isn't actually to have a contingency plan for divorce - it's a way to get at how the other person genuinely feels about ownership of money. If he says you'd still owe him in that hypothetical situation, that doesn't mean he doesn't love you, doesn't want to pay off your debts, is planning on breaking up, etc - but how might that feeling about his/your money translate into his response if you surprised him with a pricey romantic gift instead of putting the cash in savings?
My point being, your combined net worth is positive, and there are lots of great ways to manage your total debts, savings, and investments, (see many answers above) but there will be some appraoch that is most right for the two of you emotionally. You need to keep talking and asking/answering uncomfortable questions until you figure out what is best for you and your relationship. Depending on how practical/romantic/settled/thrill-seeking you are, that could mean paying of a little, most, or all of your loans; keeping all, some, or barely any of his savings; and having a lifestyle that allows setting aside just a little or as a major priority.
The best thing to do with your money is exactly what you (after careful consideration) decide that you want to do with it.
posted by aimedwander at 10:02 AM on March 2, 2010 [1 favorite]
My point being, your combined net worth is positive, and there are lots of great ways to manage your total debts, savings, and investments, (see many answers above) but there will be some appraoch that is most right for the two of you emotionally. You need to keep talking and asking/answering uncomfortable questions until you figure out what is best for you and your relationship. Depending on how practical/romantic/settled/thrill-seeking you are, that could mean paying of a little, most, or all of your loans; keeping all, some, or barely any of his savings; and having a lifestyle that allows setting aside just a little or as a major priority.
The best thing to do with your money is exactly what you (after careful consideration) decide that you want to do with it.
posted by aimedwander at 10:02 AM on March 2, 2010 [1 favorite]
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I say this because I think $50-60K (+ the $15-17K) is not a small amount to pull together - for you to save that again could take a few years of being very diligent and disciplined (of course, I don't know what sort of incomes you are on). I think for a lot of people 'paying themselves first' (saving) is trickier than paying the bills. If you don't pay the bills, people start phoning and threatening; if you don't save, well, nothing happens. It will also get down to how you both feel about money and how much you want to combine - and even some married people keep a lot of their finances separate. Personally, I'd be prepared to consider helping with the student loans, but would see the credit card debt as an issue for you to deal with yourself.
From a purely financial standpoint, you'd need to look at the interest rates on the investments/money in the bank (which you haven't given us), versus the interest rates on the debt. Also, it is possible the chunk of cash in the bank will give you financial opportunities that would otherwise be closed (eg you could buy a house with a good downpayment, even though you still have some student loan debt, but with no student loan debt but also no downpayment, I don't think the banks would be so interested).
posted by AnnaRat at 4:01 PM on March 1, 2010 [1 favorite]