Dating: Early Warning Signs of Financial Trouble

While you aren’t going to ask someone to share their credit score or debt information on a first date, you can be conscious of some warning signs early on in a relationship. More specifically, you can look for patterns of behavior that may be indicative of larger problems.

It may sound unromantic, but it’s wise to be in tune with signs of financial trouble from the get-go.  If you answer “yes” to the one or more of the following questions, then I’d say there’s reason for you to be concerned:

• Are you always paying for everything? Is that the expectation? Is this what you want in the future?
• Does the person you’re dating seem to have plenty of money until it comes to something you want to do?
• Does the other person have the latest and greatest clothes, tech gadgets, etc., and then complain that he or she has no money until payday?
• Do you see unpaid bills laying around at the other person’s home?
• Is the person getting messages that seem to be from collectors?
• Does he or she have any financial goals? 
• Does he or she ask to borrow money from you?
• Does the other person spend a great deal of money but you aren’t sure where it is coming from?

 

As your relationship progresses, and if the two of you are thinking about a commitment, then you should be more willing to share information about your credit and your finances. If the other person is unwilling to share information with you at this point, you can expect the same in the future. Is this something you could live with year after year?

Questions to ask each other once you’re in a committed relationship: 

• How much debt do each of you have? 
• What is the cause of the debt?
• What are your credit scores?
• Have either one of you experienced financial hardships?  If so, what and when?
• Do you have similar beliefs on what financial roles two people in a relationship have?
• What will you do if one of you is offered a promotion that takes you to another city?  Whose career takes priority?
• Do you have similar views on spending and saving?
• Will you both continue to work if you get married?
• Will you both work if you decide to have children?

 

These can be hard questions to tackle, but they’re essential to ask nevertheless, since the answers to them can determine the course of your relationship and your own financial future.

If a prospective partner has experienced a financial setback or two, this doesn’t necessarily mean that you shouldn’t move forward in the relationship.  Still you’ll want to understand the reason for the setback and learn what action he or she has taken to set things right.

You’re not looking for perfection, but you should expect congruency. Does the person’s actions match what they tell you?  The way a person manages money and credit often indicates how they manage other areas of their life. As difficult as it can be to remember, people don’t change because we want them to change.  People only change when they want to change.

 

Should you be concerned if your girlfriend/boyfriend has a low credit score?

by Bonnie Spain

The answer to this question depends on whether you want the relationship to progress.  If so, you’d be wise to consider your girlfriend/boyfriend’s credit score, and here’s why.

People who get married or have a committed relationship often acquire things with credit as they build their lives together—even if they’re not planning to do so at the outset.  If you eventually decided to buy a home or car together, a prospective lender will look at your credit score—and your girlfriend/boyfriend’s, too.  As a result, your girlfriend/boyfriend’s poor credit may prevent you from qualifying for a loan you want or need.

If you need both your income and his/hers to qualify for a home loan, for example, his/her credit problems could prove so damaging that his/her income wouldn’t be considered as part of the loan process.  If this happens, then you’d be left trying to qualify for a loan on your income alone, or forget buying a new home altogether.   

Though you’re working in smaller dollar amounts, the same scenario can play out for a new car, should you decide to buy one together.  What happens if your girlfriend/boyfriend can’t qualify for a car loan?  Are you willing to buy a car together if it means that the loan will have to be in your name?  What if the relationship falls apart, and you’re stuck with all the payments?    

Since your girlfriend/boyfriend’s credit could eventually have a negative impact on you, you would be wise to find out what caused his/her credit problems in the first place. Was it due to a one-time life event that was out of his/her control?  (A serious accident, for instance.)  Or are his/her credit problems a result of poor decisions, such as overspending or making late payments?  What is he/she doing right now to improve his/her credit situation?  The answers to these questions reveal information that will eventually affect your relationship.

In fact, research confirms that differing credit scores among couples can spell future trouble.  The Division of Research and Statistics and Monetary Affairs of the Federal Reserve Board of Washington, DC published a report titled “Credit Scores and Committed Relationships.”  Based on data from 12 million Americans over 15.5 years, the report reflects that couples with differences in their credit scores are highly predictive of subsequent separation. A  couple with an initial difference in credit score of 66 points is almost 25 percent more likely to separate during the second, third, and fourth year of their relationship. On the other hand, couples with higher credit scores are more likely to maintain their committed relationships.

People don’t enter a relationship thinking it will end. We are optimistic about the future.  But that doesn’t mean we should overlook the signs that are before us if we want a relationship to last.

Money and Credit Questions to Discuss Before You Get Married

by Bonnie Spain

I’ve heard it said that a woman marries a man thinking she can change him, while a man marries a woman thinking she will never change.  Alas, as much as we might wish it were so, fairytale endings do not exist.   As unromantic as it may sound, couples need to discuss issues of money and credit long before they walk down the aisle. 

My first recommendation is that you and your significant other consider counseling, even before becoming officially engaged.   Counseling can help couples identify and sort out their differences—financial and otherwise.   You need to determine if either of you have non-negotiable item that will affect your future.  Left unchecked, major differences can destroy a couple’s chances of a successful marriage.   Once engaged, many couples have a hard time turning back, even if they have reservations about their future together.

In lieu of counseling, the next best thing is for and your boyfriend/girlfriend to discuss some hard questions before moving forward with any wedding plans.  What follows certainly isn’t an exhaustive list, but these questions should start a healthy dialogue between any couple considering marriage.  

Earning, Spending and Saving: 

• What are your financial goals? 
• What are your financial priorities and are you willing to compromise.
• How important is saving money for retirement and other goals? 
• Is it important for you to tithe or donate money?   
• Will you have joint accounts, or will you each have your own?  
• Can you spend what you want without checking with the other first?
• What bills will each of you be responsible for?
• Does one of you earn more money than the other?  Will this affect how you spend?
• Will you make financial decisions jointly?
• Will each of you be in charging of paying the bills, or just one of you?   

Past Credit History: 

• How much debt do you each have? 
• Do you pay your bills on time? 
• Do you have good, average or poor credit? 
• What is your credit score?
• Are you willing to pay off the debt and help improve the credit of the other person?
• What if one person’s credit is so bad you can’t buy a home or a car?

Lifestyle choices: 

• If you both have a career, whose career will take priority? 
• If one of you is offered a better job in another location, how will you decide what to do? 
• Are you willing to move?  Under what conditions? 
• Do you believe it is acceptable to go into debt to give gifts or take vacations? 

Children:

• Will you plan to have children?  If so, how many?  
• Will you both work if you have children?
• If one of you stays home, how will you survive on one income? 
• If you have a family, will one or both of you want to move closer to grandparents? 
• Do you want your children to attend a private school?

 

Couples will often have disparate views on money and credit, but the key is to find common ground.   If a future spouse isn’t willing to open a dialogue on these issues, or if you find that your answers are wildly divergent, then I’d consider this a red flag.   With further discussion and a willingness to make concessions, a couple may be able to come to a consensus about their finances   

Moving in Together: How to Split Expenses With Your Partner

By Bonnie Spain

FAIR is a powerful word that elicits a great deal of emotion – far more than most people realize. When people believe that they have been treated UNFAIRLY, they usually become defensive, resentful and even angry.  To ensure moving in together goes as smoothly as possible, you’ll need to talk through the particulars of your finances and be willing to make compromises.  You’ll also need to define “FAIR” for yourself.

People typically think that splitting expenses 50/50 is the most equitable arrangement.  But a down-the-middle split doesn’t always work for couples who move in together.  Let’s say that one of you makes $30,000 a year, while the other brings home $50,000 annually.  If the disparity between your incomes is significant, then is a 50/50 split may not be reasonable.  

The same might apply to your food budget. If one of you eats two-thirds of the food and other eats one-third, then you may not wish to split the food bill in half.  Maybe one of you requires—or prefers—a special diet. If you don’t eat the same foods, does it make sense to split costs 50/50? 

If one of you wants cable and the other does not, should you divide this expense evenly?  If you decide to split all expenses down the middle, and one of you gets a raise, will you adjust how you handle household costs?  And what if one of you carries a heavy debt load and the other one of you does not? Are you willing to help pay for something that you did not buy?

You will have to sort through the answers to these—and other questions—if you want to minimize surprises. As for how you end up splitting expenses, I cannot tell you what is fair for your relationship. Two people must decide this together by having a thorough and honest conversation about your expectations.

I suggest you sit down together and draft all the expenses you believe you will be sharing, including rent, utilities, cable/internet, food, and household products. Discuss the expenses that you have, but that you will not be sharing.  Once you have a clearer sense of what each of you expects, then you can sketch out how you will split expenses.  You also need to talk about what you will do if one of you cannot or does not pay his/her share of the bills. 

If this relationship matters to the two of you, TAKE THE TIME TO DISCUSS HOW YOU WILL SPLIT EXPENSES. If your partner is unwilling to do this, then this spells trouble, both for your relationship and for the future of your shared finances.

What You Need to Know About Divorce and Credit

by Bonnie Spain

It is important to get a handle on the big picture of your finances as you plan your divorce.  If you have joint credit cards, car loans, a mortgage, etc., you and your spouse made a legally binding contract with your creditors. In the event of a divorce, the creditor is not a party to the change in your marital status. Even after your divorce is final, your creditors still have a contract with both of you. 

Dividing debts isn’t easy and it’s not a cut and dried scenario. What happens if one person doesn’t pay his or her debts on time or misses payments?  If you have joint accounts, both individuals’ credit scores will be hurt by the late or irregular payments until the debts are paid in full. If your ex fails to pay his/her fair share, for instance, you would have to decide if you are willing to hire an attorney to represent you in another action. If it turns out that he/she doesn’t have the means to pay, you will have spent a lot of time and money but not come out any further ahead. 

You have to decide how much each of you can afford pay. Then each of you will need to agree to pay different debts.  If possible, you both should refinance the debts you take on into your own name.  You’ll become solely responsible for the debt, but this will make it easier to manage it in the long run.  

To remove the other person’s name from an account, you will need the creditor’s approval.  However, if you open a new account and pay off the old one, then creditor approval isn’t necessary. If you have a joint car loan, and one of you plans to keep the car, then this person should refinance the loan into his/her own name. Of course, to refinance, the sole loan holder will need good credit—and the ability to repay the loan. 

If you are both planning to file for bankruptcy, the steps you take will be different than if you both plan on repaying the debts. As you consider your options, be aware that not all debts are dischargeable in bankruptcy, including student loans. So it would be unusual—and unadvisable—for one person to take on another person’s student loans.

You need to consider the possibility of one person filing for bankruptcy, while other person does not. If you have joint accounts, creditors will contact the person not filing for bankruptcy to collect payments. In some cases, this can force the other person to file for bankruptcy. 

Before you determine how much you can pay, meet with a non-profit certified credit counselor to review your budget, debts, assets, and options.  Because divorce is such an emotional event it is a good idea to get the advice of a non-judgmental professional who can help you see your options.

How to Help a Relative Who is Always Borrowing Money From You

by Bonnie Spain

Most of us learn the hard way that lending a relative money rarely solves his/her problems.  Instead, it allows him/her to avoid dealing with the real financial issues he/she has. Your relative needs to find his/her own solutions, but as long as you give or loan him/her money, he/she has no reason to get to the root of his/her own problems.

I recommend two things.  First, you should suggest that your relative contact a non-profit accredited credit counseling agency. An appointment should be free of charge. The counselor will review his/her monthly income and expenses and will be able to offer your relative advice to help him/her take control of his/her finances.  It could be that your relative just needs some suggestions on how to make his/her money go further, or it could be that he/she has an addictive behavior that he/she needs to address.  A trained, certified credit counselor will be able to help uncover the real issue and provide your relative with the steps he/she needs to move forward.

Second, I’d suggest that you encourage your relative to enroll in a financial education program.  While most people think they know how to manage money, many do not.  It’s not surprising that so many people lack the financial skills they need since so few have ever taken a course on personal finance, money management or credit.  A financial education program can help your relative understand ways to manage his/her money more effectively.

We want to help those we love, but you should avoid coming up with solutions for your relative, including co-signing on loans. If your relative takes out a loan that you’ve cosigned on and he/she can’t repay it, you are obligated to make the payments, and your credit will suffer, too.  What’s more, if you try to find other solutions for your relative and they don’t work out, you might be blamed for his/her situation getting worse.  If your relative ends up with a high-interest payday loan, he/she may get caught in a vicious cycle that perpetuates his/her problems.  If he/she pawns something of value and loses it, he/she may try to hold you responsible for his/her loss. 

Your relative’s credit history will play a role in creating solutions that will help him/her in the long term.  Again, a certified credit counselor can objectively advise your relative on his/her best options. Your relative needs to get to the root of his/her problems and address them to create lasting solutions.  Until then, your best move is to refer your relative for help.