Combining finances often makes sense for long-term partners (whether married or not). It’s a way to commit more to each other and simplify financial affairs. But what about debt?
According to a 2017 survey by MagnifyMoney, money problems were the primary cause of one in five divorces. And considering that 27% of Americans don’t have any sort of emergency fund, debt can quickly become a big problem. Consolidating high-interest debt can decrease some of your financial pressure.
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Table of Contents
Married couples and debt
The rules are pretty straightforward.
If you and your spouse take out debt together, either before or after the marriage, you are equally responsible for repayment. The debt includes credit cards, lines of credit and other joint accounts.
If one partner has taken on debt while single (student loans, for example), this debt remains their sole responsibility after the marriage.
If you borrow money alone while married and only your name appears on the credit account, you will likely be solely responsible for repaying the debt in the case of separation or divorce. There are two exceptions, though.
- If the money was borrowed for living costs or other shared expenses
- If you live in a community property state. Almost all debt acquired during a marriage becomes a joint responsibility in a community property state. The following are community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
READ MORE: How does divorce affect debt consolidation?
Can a husband and wife consolidate debt?
Yes, but whether you should is a different issue. It depends on whether the debt is joint debt (like a home loan or a car loan) or individual debt, like student loans or medical bills, that one partner accrued before marriage.
While it is possible to consolidate joint debt and individual debt, it also means that the other partner will be responsible for making the payments — even if a couple divorces. No couple wants to plan for the worst as soon as they marry, but converting individual debt to joint debt will also impact your credit score, increasing credit utilization and your debt-to-income ratio. This will cause your credit score to fall.
READ MORE: What happens to your credit score when you get married?
Top joint debt consolidation loan providers for married couples
Here are the best lenders that allow joint loan options for debt consolidation for married couples.
Disclaimer: DebtHammer may be affiliated with some of the companies mentioned in this article. DebtHammer may make money from advertisements, or when you contact a company through our platform.
LightStream
- APR: 7.49% to 25.49%
- Loan amount: Up to $100,000
- Loan terms: 24 to 84 months
- Credit check: Yes
- Minimum credit score: 670
- Application process: Apply online and receive a response during business hours which typically won’t take longer than two business days.
- Prequalification: None
- Other important information: No origination fees, prepayment penalty, or late fees. Joint application option and autopay discount. You can get your money the same day your loan is approved.
Freedom Plus
- APR: 7.99% to 29.99%
- Loan amount: $7,500 up to $50,000
- Loan terms: 2 to 5 years
- Credit check: Yes
- Minimum credit score: 600
- Application process: Apply online; a loan consultant will contact you if you qualify. If you don’t qualify, the lender will notify you by mail. The majority of customers receive a loan decision the same day they apply. The lender says it can fund a loan within three days of approval
- Prequalification: Yes, with a soft credit check that won’t harm your score
- Other important information: They charge origination fees (1.99% to 4.99%), no discount for autopay, there’s no secured or co-signed loan option, the debt-to-income ratio is 45% excluding mortgage, you need a minimum of 3 years of credit history and no bankruptcies in the last two years. They offer lender discounts up to six percentage points off with a co-borrower on the application. They give you a rate discount of up to five percentage points off if you show substantial retirement savings (at least $25,000 and $40,000 to get the most significant discount). And there is a direct pay discount when funds are sent to the creditors directly for four percent off (at least 85% of the funds sent to creditors).
SoFi
- APR: 8.99% to 25.81% (rates reflect a 0.25% autopay interest rate discount and a 0.25% direct deposit interest rate discount)
- Loan amount: $5,000 up to $100,000
- Loan terms: 24 to 60 months
- Credit check: A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being prequalified.
- Minimum credit score: 680
- Application process: Their loan applications begin our initial review within one business day, and most of our applications are completed within two business. The application process is completed entirely online.
- Prequalification: Yes, online with a soft pull.
- Other important information: Low rates, no origination fees, no prepayment fees, or other “hidden fees,” You can view rates in as little as 60 seconds. You have access to customer support seven days a week.
Should married couples consolidate debt?
It depends. Is it joint debt, or is one spouse responsible? Do you live in a community property state? If so, consolidation is your best option. Does one spouse have a significantly better credit score than the other? If so, a joint application can boost your chances of loan approval.
Plan for the worst
No one wants to plan for the worst-case scenario, but if you divorce or separate and your spouse stops making payments, you will be expected to repay the debt. Discuss debt specifics before the wedding. If necessary, set up a prenup.
A prenuptial or pre-marital agreement can be a handy tool for both spouses to protect their pre-marital assets, create certainty of how the assets will be distributed if the parties divorce and help preserve the parties’ lifestyle after divorce. In the case of debt, a prenuptial agreement can ensure that debts are handled responsibly. While debt may not always be a comfortable conversation, a prenuptial agreement can give a couple a clear picture of their financial status at the start of a marriage.
Pro tip: Divorce or separation agreements can’t allocate debt. Though you may agree to split the debts 50-50, or your spouse agrees to take on a monthly loan payment for a debt they incurred, these agreements have no legal impact on your lender. In other words, if your ex-spouse fails to make the agreed-upon debt payments, you will still be partially responsible for the debt, and your credit score will suffer. Additionally, you can’t have your name removed from a joint loan without first getting approval from the lender.
Marital assets and property
Are you willing to risk any family assets to consolidate unsecured debt? This can be tricky and should be discussed with your partner.
According to the Merrill Edge Report, 60% of people rarely discuss their debt with their significant other.
Mortgage refinancing or using home equity loans or lines of credit may seem like an ideal way to consolidate loans and credit card debt, but merging family debt and a mortgage creates two significant risks:
- The larger loan and higher interest rates could increase your mortgage payment
- You could lose your home if you can’t afford the higher mortgage payments
Pro tip: Refinancing your mortgage can be an ideal option if you have enough equity, and it will leave you with one monthly mortgage payment. However, your interest rate will likely be higher, and you’ll have to pay thousands of dollars in closing costs.
Impact on credit score
At least one applicant will need a good credit score, which may be enough to override your partner’s poor credit score. However, a joint application means that any debts dragging down your spouse’s credit score will now appear on your credit report and your excellent credit score could be knocked down. Your score may also fall because you’ve taken on new credit or had multiple applications or hard pulls. A new loan can also increase your debt-to-income and credit utilization ratios.
Look through your credit reports carefully to ensure all the information is correct. Errors in your credit reports can negatively affect your credit scores and ability to get a loan. Discuss your credit scores and credit history and see where you can improve your scores. Reviewing your credit reports can also help you monitor identity theft and fraud.
Student loans
Education is expensive, and thanks to student loans, many young couples are already entering marriage with debt. In that case, seeking student loan debt relief rather than a joint consolidation loan may make more sense, mainly because consolidation could cost you certain tax benefits.
Pro tip: According to Student Loan Hero, owned by Lending Tree, 24% of student loan borrowers keep their student loans a secret from their partners.
The U.S. Department of Education offers some student loan forgiveness programs. Some of the regulations proposed to alleviate student loan debt are:
- for borrowers whose schools closed or lied to them
- for people who are totally and permanently disabled
- for public service workers who have met their commitments under the Public Service Loan Forgiveness (PSLF) program
There are regulations for stopping interest capitalization on those loans when unpaid interest is added onto the principal, increasing what you owe.
And for those who have disputes with their universities, you can get your day in court and hold them accountable for their wrongdoings.
Learn more about the student debt relief programs and see if you qualify at: Education Department Releases Proposed Regulations to Expand and Improve Targeted Relief Programs.
READ MORE: Debt consolidation pros and cons
Alternatives to a debt consolidation loan
The bottom line
Marriage is complicated. You’re making major life changes, but also big financial ones, particularly if at least one partner has debt. It’s important to have an open, honest conversation about your financial situation with your intended.
Prenups aren’t only for the wealthy; though it may be an unpleasant conversation, it’s important to make plans for the future, particularly if one partner is entering the marriage with significantly more debt than the other. It will ease worries about money and build a more solid family foundation.
