This is a familiar story: a couple falls in love and decides to marry, full of excitement for their future together. However, they carry a significant weight in the form of student loan debt—a considerable amount of it. As they embark on this journey with their financial burdens, what strategies can they employ to improve their chances of success in both marriage and finances? If this resonates with you, keep reading.
1. Know Your Financial Situation
Effective communication is crucial in any relationship. While discussing finances can be challenging, initiating these talks will lay a solid foundation for your marriage. Start by addressing the debt each of you brings into the partnership.
Regardless of who has the debt, both partners should understand the total amount owed, the interest rates, the monthly payments, and the duration of these obligations.
This level of awareness will help you align your expectations regarding future investments like home purchases, vacation budgets, and other financial decisions. (Also see: The 7 Most Common Money Mistakes Couples Make)
2. Embrace Joint Responsibility
Marriage symbolizes unity, teamwork, and shared destinies. You are not just becoming housemates; you are partners for life. Thus, if one partner enters the marriage with financial stability while the other does not, after tying the knot, both will share in that wealth. Conversely, if one partner has debt, it is now a shared burden.
Take, for example, my friends Scott and Karen Coy. Upon their marriage, Karen was encumbered with over $50,000 in nonmortgage debt, which Scott humorously termed as “a reverse dowry.” Karen often felt guilty about “her debt,” but Scott consistently corrected her—stressing that it was “our debt.”
For more than six years, they worked diligently to eliminate that debt, choosing to rent instead of buy a home. This journey required considerable patience and dedication.
For Karen, the day they completed their final payment was unforgettable, akin to lifting a massive weight. She reflects that navigating this challenge together fortified their bond.
3. Assess Your Tax Situation
If you utilized an income-driven repayment plan prior to marriage, your tax filing method post-marriage is essential in determining your next steps. Filing jointly might increase your payment obligations since income-driven plans require annual recertification based on both spouses’ incomes. You might want to explore filing separately, as many loan plans will then only consider the borrower’s income.
However, filing separately may disqualify you from certain tax breaks, so tread carefully. It’s advisable to consult a financial advisor or test different scenarios with tax-preparation software.
4. Create a Post-Marriage Budget
Prior to establishing where you’ll reside after your wedding, outline your cash flow plan for your post-marriage life. Start with your financial commitments: how much of your combined earnings will go toward savings and investments? What portion will you donate to charity? And how much will go towards repaying debt?
This calculation will then clarify your housing budget. Typically, it’s recommended to limit your combined mortgage, property taxes, and homeowners’ insurance to 25 percent of your monthly gross income. If you opt to rent, adhere to the same 25 percent principle for rent and renters’ insurance.
However, bear in mind that student loan repayments alter your financial calculations. Ideally, your housing costs combined with student loan repayments should not exceed 25 percent of your gross income. Therefore, assess what portion your loan payments constitute of your monthly earnings, and deduct it from the 25 percent threshold to establish your housing affordability.
If your student loans consume a significant share of your gross income, you may face restrictive housing options. Consequently, you might need to reduce spending in other areas such as entertainment, apparel, or travel. (Also see: 3 Easy Ways to Split Bills With Your Partner)
5. Focus on Early Debt Repayment
The initial years of your marriage offer an excellent chance to accelerate your debt repayment journey. If you’re considering starting a family, the period before children is likely to be your most financially flexible phase. Take advantage by making extra payments towards your loans.
Debt can hinder your ability to achieve financial milestones, such as homeownership, and negatively impact relationship happiness. Consider living on one income and channel the other toward loan repayments. By adopting a frugal lifestyle during the early stages of your marriage, you are setting the groundwork for future prosperity. (Also see: 7 Ways to Pay Off Student Loans Quickly for Financial Gains)
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