Debt can feel like a dark cloud hanging over a relationship, but it doesn’t have to be a storm that rains on your parade. In fact, nearly 3 in 4 adults in the U.S. who are married or living with a partner reported that they fight about money, and financial stress is one of the top 6 biggest factors for divorce. Tackling debt as a team can alleviate financial stress, strengthen your bond, and secure your future together. Let’s turn that debt mountain into a molehill, one step at a time.
Understanding your debt
Before diving into the nitty-gritty of paying off debt, it’s crucial to understand where you both stand financially. Doing so will help you get a clear picture of your financial situation. Here’s how:
- List all your Debts: Literally write down all your debts, including credit cards, student loans, car loans, and mortgages.
- Identify Interest Rates: Note down the interest rates for each debt. This will help prioritize which debts to tackle first. For example, if you have three different student loans out with the Federal government, you’ll want to write down each loan’s interest rate.
- Calculate Monthly Payments: Determine the minimum monthly payments for each debt to establish your baseline. For instance, understand the minimum for your student loans and credit card debt, so you know what the baseline is, and you can (and should) increase from there.
Having a clear picture of your debt situation is the first step towards financial freedom and lays the groundwork for becoming debt-free. Now that you have the clarity needed to tackle debt as a couple, let’s move on to the next step: goal setting.
Setting shared financial goals
Setting goals together can turn the daunting task of paying off debt into a motivating activity. Here’s where you get to create a roadmap that aligns with both you and your partners’ aspirations.
- Short-term Goals: Set achievable targets, for example, paying off a small credit card within six months or paying off $2,000 in student loans within three months. Whatever makes sense for you.
- Long-term Goals: Think bigger, like becoming debt-free in five years or saving for a down payment on a house.
- Reward Milestones: Celebrate small victories to keep motivation high, such as a special date night for every $1,000 paid off. Yes, be financially savvy, and also make the journey enjoyable.
By creating shared goals, you have a clear vision of why you’re making certain cutbacks and sacrifices. This not only keeps you on track but also strengthens your partnership in the process.
Choosing a debt payoff strategy
Not all debt payoff plans are created equal. So, it’s time to explore the different strategies to find one that best suits your couple’s dynamic.
- Debt Snowball Method: Prioritize paying off the smallest debts first to build momentum and boost your motivation. For example, if you have a $5,000 loan, a $30,000 loan, and a $100,000 loan, work on paying off the $5,000 first, then the $30k, then tackle the big one.
- Debt Avalanche Method: Here, you focus on debts with the highest interest rates as they’re the most costly, saving you money over time. For example, if you have three loans, one with a 17% rate, one with a 5% rate, and one with a 6% rate, tackle the loan with the 17% rate first.
- Debt Consolidation: Combine multiple debts into a single payment, possibly with a lower interest rate, to simplify your debt paydown. For example, you may be able to consolidate your federal student loans into a private loan company and consolidate all of the federal loans into one private loan with a lower interest rate. Some private loan servicers that may offer this are Ernest and SoFi.
There’s no one right strategy, just one that works for you and that you’l actually stick to. The Avalanche method is preferred as it saves on interest payments. However, select a debt payoff strategy that works for both of you and just get started.
Creating a budget together
A budget is your financial blueprint and roadmap to success. Let’s now discuss how to create a realistic budget that supports your debt payoff plan.
- Track Spending: There are great apps available like Mint or YNAB that help you track your spending habits and course-correct where needed.
- Cut Unnecessary Expenses: Identify areas where you can cut or trim costs, like dining out or subscription services. Even small amounts add up fast, so be ruthless here. Yes, even that $2.99 per month app you pay for adds up!
- Allocate Extra Funds: To achieve your debt-free goal, it’s a good idea to direct any additional income, like bonuses or tax refunds, towards debt repayment.
Budgeting may not sound exciting just yet, but a well-planned budget ensures you stay on track and make steady progress toward eliminating debt, which will certainly have you celebrating!
Communicating openly about finances
Open communication is essential in all areas of your relationship, and money is no different. So, let’s take a look at some top tips on communicating well while maintaining understanding.
- Regular Check-ins: Schedule weekly or monthly financial meetings, or what I call “Money Dates,” to discuss progress and challenges.
- Honesty is Key: Be truthful about spending habits and financial concerns, even when avoiding the topic is easier. For example, we totally understand why telling your partner you have $150,000 in student loans is difficult, but it is necessary for financial planning and the foundation of the relationship.
- Support Each Other: Encourage and support each other, especially during setbacks. Try to support your partner and not immediately assume the worst. If they mess up, try to practice forgiveness and work towards better money habits.
Effective communication is key to financial success together. 1 in 5 people would rather their partner make a big financial decision without their knowledge than binge-watch their favorite show alone. Don’t become a statistic; schedule your money date!
Frequently Asked Questions (FAQs) about paying off debt together
As we wrap up on debt paydown, let’s take a look at some common questions couples might have about paying off debt together.
Q: How do we handle different financial priorities?
A: Prioritize open communication and compromise to find common ground. This is an art, not a science. Get more help with navigating financial compromise here.
Q: What if one partner earns more?
A: Consider proportional contributions to debt payments based on income.
Q: Can we still enjoy life while paying off debt?
A: Absolutely! Budget for fun activities within reason to avoid burnout and celebrate each milestone along the way.
Final thoughts on paying off debt together
Paying off debt as a couple is not just a financial task; it’s a journey that can bring you closer together by building trust, practicing better communication, and compromising on what matters most. You can and will transform your financial future by understanding your debt structure, setting shared goals, choosing the right strategy, budgeting effectively, and communicating openly. Remember, it’s not just about getting out of the red but about building a brighter, more secure future together.
Laura Tynan is the founder of The Witch of Wall Street, a personal finance and investing community, where women are shown how to manage, multiply and manifest money, using simple strategies. Laura holds a BSc Hons in Finance, is a Chartered Accountant, and is certified in EFT Tapping, Breathwork, and RRT. She has been recognized by the Financial Times as a Top 20 Future Female Leader and by Yahoo! Finance as a Global Champion of Women in Business. She is a multi-award-winning speaker who has spoken at, and been featured in, Forbes. Laura hosts The Witch of Wall Street podcast and is the author of the personal finance and investing book for women, by the same name, which is available now on Amazon.
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