As a generation overburdened with debt, millennials are also very forgiving of their debt-laden peers. In MONEY’s poll earlier this year of 1,000 millennials and boomers, we found that Gen Y was far less likely to say a large amount of debt was an unattractive quality in a mate, 41% vs. 61% of boomers.
They were also less likely to reject a relationship because of debt. While nearly a third of boomers said having more than $50,000 in student debt was a relationship deal breaker, only a fourth of millennials felt the same.
To some extent, this is basic empathy and shared experience. But Gen Y may be failing to truly take into account what carrying debt into a union can do to future aspirations like owning a home or raising children.
So before you unite your finances with the one you love, follow these steps to ensure you have a solid plan for handling and paying off your debts so that it doesn’t end up chipping away at your happiness and self-confidence within the relationship.
Confront the Situation
You and your partner may have discussed debt in passing, and maybe even bemoaned how much of your monthly paycheck goes to paying back loans. But if you’re thinking about tying your life and finances to each other, you need to come completely clean. Have a respectful and honest conversation with your mate in which you both outline every debt.
Discuss not just the amount of each loan, but the terms, any plan you’ve made for its repayment, and the progress you’ve made. “You can’t fix a problem if it’s not accurately defined,” says College Station, Texas-based financial planner William Grantham.
Then, together, create a net worth statement: List your incomes and other assets as well as debts and other obligations. Get a clear sense of how much is currently going toward debt repayment and how long your current payments will take to eradicate it.
Decide How to Tackle It
Once you know exactly how much debt you have as a couple, you need to have a frank discussion about whether you want to regard each debt as the sole responsibility of the one who incurred it or want to regard it as “ours.” Obviously, your partner’s debt load will affect you too, even if you’re not directly putting a portion of your income toward its repayment, as it will limit the amount you both can afford to spend on housing, vacations, retirement savings, etc.
Marriage is the inflection point, says Brian Wright, a planner in Fishers, Ind. For couples who are still dating but not married, “keep focused on paying your own debt and don’t obtain any joint debt,” he suggests. “If married, [you should] budget together, even if you don’t physically merge bank accounts. Once you’re married, treat the debt as ‘our debt’ and put a plan together to pay it off, regardless of whose debt it is.”
To find the funds to help you and your partner pay off the debt, comb through your spending. “Sit down with your credit and debit card statements and other bills, and highlight in one color the things you need to have [like] food, gas,” says financial planner Jeff Motske, author of The Couple’s Guide to Financial Compatibility. “In another color, highlight items that you really want to have, like gym memberships or other entertainment; and in a third color highlight your other more emotional purchases. You can quickly see if you’re spending hundreds in one area, and what unnecessary items you can cut out.”
Set Payoff Priorities
Once you’ve found the extra funds, determine which debt requires your attention first. Planners tend to break debt into two categories: “good debt” — a category that includes mortgages, student loans, real estate loans and business loans, and often allows the holder some tax breaks — and “bad debt” (credit cards and auto loans).
Focus on paying off the bad debts first, starting with credit cards. Many people recommend starting with the highest-rate card, to reduce the total interest paid. It may be more emotionally satisfying to start with the smallest balance, however. “Once you’ve successfully paid one off, you’re emotionally excited about doing the same with the rest,” says Motske. “If you tackle your highest debt first, you may feel frustrated by the lack of accomplishment, and end up falling back on old habits.”
You could also transfer all debts to one new card that has a 0% APR on balance transfers, like the Chase Slate card — but only if you have a realistic plan to pay off the balance in 15 months. After the 0% period, the APR can spike to as high as 22%.
Change Your Student Loan Payment Plan
Meanwhile, rethink your approach to the good debt. Federal student loan program automatically enroll all borrowers in a standard 10-year repayment plan, but the feds also offer six other repayment options. This tool, created by the Department of Education, will help you figure out the right plan for you.
Income-driven plans tend to be the best fit for most recent graduates, as the monthly bills adjust to your salary and in some cases offer a possibility of loan forgiveness. For example, if you work for the government or a nonprofit and pay on time every month for 10 years, the remainder of your debt can be forgiven; you won’t even owe taxes on the balance. Graduates working in other fields may have similar opportunities after 20 or 25 years, but will owe taxes on the amount forgiven.
Keep in mind that if you opt for income-based repayment, and you marry, filing a joint tax return could have a big impact on your monthly burden, as the loan servicer will consider both incomes when calculating payments.
If you’re a graduate with a steady job, good credit and enough income to pay down your loans, you can find much lower interest rates with private consolidation loans, but the amount you can save is generally not worth giving up federal consumer protections and possible debt forgiveness. (The Consumer Financial Protection Bureau estimates that more than one-quarter of working Americans are eligible for the Public Service Loan Forgiveness Program.)
For more ideas on ways to get your student loans forgiven, see this list.
Make Sure You’re Paying the Principal
To rid yourself of the debt faster, you’re going to need to put down more than the minimum required payment each month — and make sure the money goes toward lowering the principal. The CFPB says borrowers have complained about lenders applying extra payments toward next month’s bill instead.
To avoid this confusion, the CFPB suggests sending a letter to the lender explaining how your extra payments should be credited. Here’s their sample letter.
Consider Life Insurance
If you and your partner have taken on debt together, such as a mortgage or an auto loan, and you think your mate would have trouble covering those bills without your income, “protect yourselves from financial disaster by purchasing enough life insurance to cover at least the amount of your debts. The loss of a loved one is hard enough without having to worry about a mountain of debt,” says Grantham.
Celebrate the Victories
Your debt won’t vanish overnight, and paying it off will require a lot of self-restraint and patience. So review your progress regularly to ensure you’re remaining on track to meet your payoff goals — and as you whittle down the debts, don’t forget to reward yourself (frugally, of course).
“Maintain a positive outlook, says Grantham. “If you have multiple loans and pay one off, commemorate the event by going out to dinner. Even a small gesture like dinner can be good motivation to stick to the plan.”