With the financial pressure on marriages increasing, divorce is a frequent outcome. Many of the problems that strain a marriage can be sourced to a difference in financial philosophy amongst a couple, and specifically to the variance in spending behavior and attitude towards debt. Jeff Opdyke explores this issue at The Wall Street Journal, writing, “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.”
This advice makes sense. More communication about finances and specifically about the role that debt should play in their lives, including how it fits into the household’s priorities, is key. But equally important is coming up with the plan to pay it off – and executing and tracking it to measure success. In the past we’ve argued for individuals to come up with debt management and elimination plans. But couples with combined finances should seriously consider forming a debt plan together, and here’s how to do it.
Step One: Set up some of the basics.
Commit together to stop spending on credit cards completely. As a team, check each other’s progress and make sure that no plastic is being swiped moving forward. Review each other’s credit card statements to not only stay on the same page, but to get as accurate a total view of one’s household finances as possible. Brainstorm on all of the different debt accounts outstanding between the two individuals, bring together all of the debt paperwork for each person, including cash account information, and start to organize it – first into rough piles, then make those piles more specific – by type of debt, interest rate, etc. Most importantly, avoid judging each other in the process. Wait and do a systematized evaluation of the debt once all of the information is clearly out on the table.
Step Two: Figure out a monthly payment commitment.
Identify the monthly minimum that must be paid as a couple. Then add on top of it, since paying only the minimum makes the debt even more expensive moving forward.
Step Three: Select a debt strategy.
Debt stacking, snowball, and constant payments are the basic approaches. Choose one of them, bearing in mind that although the constant payments strategy is the simplest to plan, it optimizes debt reduction the least.
Step Four: Set up a system for debt reduction.
Use a monthly tracking spreadsheet, and execute your payments before deadlines to prevent punitive fees. Review your debt reduction progress each month.
Bonus Step: Once you’ve got a handle on the four core steps, try to reduce the debt burden by calling your lenders and negotiating for lower interest rates, identifying and applying one-time sources of cash towards debt elimination payments, and setting up a separate checking account to use to pay down debts. Even better, take a stab at increasing your monthly debt reduction commitment payment.
Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs. DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.
