By: Bill Hardekopf
Many couples begin marriage with one or both partners in debt from student loans or credit cards. According to aTransUnion study, student loan balances increased 75% from 2007 to 2012, and the average debt per borrower now stands at $23,829. In addition, the average credit card debt per borrower was $5,122 in the fourth quarter of 2012.
Here are some financial tips for newlyweds:
- Before you get married, know how your future spouse handles money. Even if you agree on almost everything, don’t assume your spouse shares your beliefs about money. Pay attention to how and where the money is spent.
- Before the wedding, reveal everything about your finances, including income, debts, giving and retirement accounts. Share your bank statements from the past 12 months. Explain your strengths and weaknesses with money and whether you function as a spender or a saver.
- Each of you should get a copy of your credit reports from the three credit bureaus. This will give you a clear picture of credit accounts, debts and how creditors will judge you. Aim to get your scores over 750 to receive the lowest interest rates for your first mortgage and other loans. A low credit score has a widespread effect on interest rates, insurance premiums and employment. Nearly 47% of employers use credit checks when making a hiring decision, according to a 2012 survey by the Society for Human Resource Management.
- If your partner has been married before, find out about the financial obligations to the ex-spouse and children.
- Have a wedding and honeymoon you can afford. Do not start a life together charging thousands of dollars in wedding and honeymoon expenses to your credit card if you can’t pay it off within a year.
- If both of you work now, live on one salary and save as much as you can of the second income. This helps prepare for income interruptions in the future such as starting a business, changing careers, returning to school or starting a family.
- Avoid credit card debt. If you can’t pay for something with cash, you can’t afford it.
- If you have a credit card balance, pay as much as you can above the minimum each month. If you get gift money, a bonus, a second job or a tax refund, use this to pay off your debt. You can even make micropayments multiple times during the month to pay off your balance faster. Eat a meal at home and apply the money you save immediately to your credit card balance.
- Before the first bills come in, decide who will pay them and when this will take place. If you have separate accounts, know which account pays each bill. Also notify creditors of name changes or a new address.
- Reduce your debt-to-available credit ratio. This will help improve your credit score. Your monthly debt, including your mortgage, should not exceed 30% of your gross income.
- Each spouse should have a credit card in his or her own name to build an individual credit score. Keep that card for a long time. Use the card for several purchases each month and pay the bill in full immediately. Building a long-term payment history with one or two credit cards is an important factor in your credit score.
- Beware of little debts. Debt creeps up in little ways, including vacations, gifts, entertainment or cars, and can grow to more than you can afford. The debt and interest payments can increase quickly.
Here are some credit cards that are good choices for newlyweds:
Citi Simplicity (C_) has 0% for 18 months on purchases and balance transfers. This is a good introductory offer that can help you pay down balances on higher-rate credit cards as well as providing an interest-free loan for 18 months. Make sure you can pay off the entire balance by the end of the introductory period.
Blue Cash Everyday Card from American Express (AXP_) gives 100 Reward Dollars after you make $1,000 in purchases in the first three months of card membership. You earn 3% cash back at supermarkets (up to $6,000 per year in purchases), 2% at gas stations and select department stores and 1% on other purchases.
Citi HHilton Honors Visa Signature The interest rate is higher, 14.24% or 16.24%, so this is a good option only if you pay off your card each month. Get 40,000 Hilton HHonors bonus points after you spend $1,000 after the first four months of opening the account. Earn six HHonors Bonus Points for each $1 spent at a participating hotel within the HHonors portfolio and three HHonors bonus points per $1 spent on purchases at supermarkets, drugstores and gas stations; earn two HHonors bonus points per $1 spent on all other purchases. This card does not have an annual fee.