Budgeting Debt Repayment
Which Debt First?
When Your Spouse Doesn't Care about Money
My husband doesn't know that I have run up credit card debts to a very hefty sum. I would like to pay these off, but I am really having trouble. I have cut down my spending considerably, but it doesn't seem to make a dent.
I also own some stock in one company that if I sold all of it would cover the credit cards. But that means taxes on it. How can I get out of this mess I have created for myself?
Sounds like Jill is in a tough corner. It's hard enough to dig out from credit card debt, but doing it without your spouse noticing must be especially difficult.
Let's first look at the personal aspects and then we'll consider what financial options Jill has available to her. We'll assume that her goal is to handle the debt and protect her marriage.
As Jill is well aware, she can take one of two paths: tell her husband about the debt or continue to hide it from him. Neither path allows her to avoid or ignore the financial problem.
We'll begin with a disclaimer. We give financial, not marital advice, so I want to be careful. But it seems to me that a healthy marriage would be better able to handle a confession than the deception that comes from hiding the debt. One deception usually leads to more. Not generally good for a relationship.
There are other reasons to get the debt out into the open. It will be easier to create and execute a strategy to pay it off if both partners are involved.
These financial decisions will have a big impact on the whole family. Does either partner have the right to make that big of a decision without consulting their mate?
There are legal reasons as well. If the debt is on a joint credit card account, creditors could come after him for payment. And, both of their credit ratings are being affected.
Besides, her husband may already be aware of the problem. It's hard not to notice your spouse living beyond your means!
What if Jill is concerned about physical abuse or the collapse of her marriage if she admits what has happened? In either case, she needs to seek professional counseling. A trained expert can spot and try to defuse any potential crisis. Trying to 'go it alone' could be dangerous.
Jill has a number of financial options available to her. She mentions the first possibility. Selling her stock and using the proceeds to pay off the debt. If Jill has owned the stock for more than one year, the capital gains tax rate will be 15%. Remember that's 15% of the gain (difference between sale and purchase price). Not 15% of the amount of the sale.
That could be Jill's best option, but if the stock was meant as a college or retirement fund, selling it now could cause big problems later.
Jill could choose to continue to pay off the debt a little at a time. She might want to estimate how long that will take. Bankrate.com has a simple calculator at www.bankrate.com/dls/calculators/credit-cards.asp
She could speed up the process by reducing the interest rate. Usually the cheapest money to borrow (short of having a friendly rich uncle) is against your home. Jill could take out a home equity loan and use the proceeds to pay off the credit cards.
There is a danger to that. The newly paid off credit cards will have a large unused credit line. Some people are unable to resist the 'call of the mall' when that happens.
One other thing for Jill to consider is that unless she's the sole owner of the home, she'll need to get her husband to sign a home loan agreement.
Jill may decide that realistically she can't pay off the debt in its current form. In that case, she might want to consider contacting a credit counseling agency. Typically, they can negotiate lower interest rates for the borrower, but there is a cost. Her credit report will reflect that she did not pay per the original account agreement.
If her situation is real bad, bankruptcy is an option. In that case, she'd almost certainly have to let her husband know that's what she was doing.
One side note. If Jill accumulated the debt by unnecessary spending, she needs to get that under control. No matter what else she does. If she continues to spend beyond her means, her problems will continue to get bigger and harder to solve.
So what should Jill do? It really depends on how big the debt is and the strength of her marriage. Everyone who's married would like to think that they could bring a problem (even one that they helped create) to their partner and get a sympathetic and helpful response.
Let's hope that Jill has that type of relationship. Because if she does, the easiest way to get the credit card paid off is to work side by side with her spouse. Regardless of which financial strategy they choose.
Gary Foreman is a former financial planner and purchasing manager who currently edits The Dollar Stretcher.com website and newsletters. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report and he's a regular contributor to US News Money and CreditCards.com. You can follow Gary on Twitter or visit Gary Foreman on Google+.
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