How Newlyweds Can Minimize Financial Stress
by Bill Hardekopf, CEO LowCards.com
Many newlyweds are about to start their life together. While they have the same dreams and goals as newlyweds before them, many are going to find it much more difficult to get credit to finance those goals. New credit card regulations and the reaction by issuers are likely to have a big impact on those who are just starting out and applying for credit.
This a difficult financial time where easy credit is no longer available to everyone. It is now more difficult to get loans for homes and credit cards. Your credit scores, history and even spending activities are now closely watched and you will have to prove to credit issuers that you are not a risk for defaulting on a loan. Your engagement period is a good time to start building a financial plan.
Your spouse is your "business" partner as well as your life partner. Your credit, good name, and financial future will be tied to this person. Don't assume that your spouse thinks the same way you do or shares the same beliefs about money. Their spending and saving habits may surprise you.
Have an honest discussion about money. If your partner has difficulties managing debt or spending, it will not only affect your finances, but could also affect your credit score.
Talking about money is difficult for anyone, but discussing finances before the wedding is a good way to test the relationship. If you can't have an honest discussion about finances before the wedding, then this may not be the person you want to join together with for the rest of your life. Finances are one of the biggest causes of stress in a marriage. You will be better off if you can confide in each other and create a financial plan.
Here are tips for avoiding the stresses of marriage and debt:
- Before the wedding, show all of your cards. Tell your spouse about your income, debts, issues you have with money, how your parents raised you to handle money, your strengths and weaknesses with money, and admit if you are a spender or saver. A good place to start is to use a budget or bank statements from the past twelve months to show how you used your money. Your monthly debt, including your mortgage, should not exceed 35% of your gross income.
- Have a wedding that you can afford. This is not the time to start running up large credit card bills and still be paying for your wedding on your fifth anniversary.
- Each of you should get a copy of your credit reports. This will give you a clear picture of how you both handle money and it will help avoid any future surprises. Aim to get your score over 750 to receive the lowest interest rates for your first mortgage and other loans.
- Avoid credit card debt. The best rule of thumb is simply, "If you can't pay for something with cash, you can't afford it." Don't fall into the trap of buying something with a credit card with the intent of paying it off in just a few months.
- Get one or two credit cards and stick with them. Building a good payment history with one or two credit cards is a positive factor in your credit score.
- Each spouse should have a credit card in his or her own name to build your own credit score.
- If you have a balance, pay off as much as you can over the minimum each month. If you get gift money, tax refunds, etc., use this to pay off your debt. The faster you pay it off, the faster you can focus on saving and getting ahead. Reducing your debt-to-credit limit ratio also improves your credit score.
- Before the first bills come in, make a plan for how the bills will be paid and who will pay them. If you have separate accounts, know which account pays each bill.
Bill Hardekopf is the CEO of LowCards.com, a site that simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card.
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