Ah, Valentine's Day: the time of year when couples like to talk about love. But according to one expert, those lovebirds also need to talk seriously about money and credit if they want their relationships to stand the test of time.
Adam Levin, co-founder and chairman of Credit.com, spoke with WalletPop about the kinds of money conversations couples need to have with one another if they're thinking of tying the knot or merging their finances. Especially in these financially perilous times, he says, "Everybody has to step up and increase their awareness."
Levin says that women, traditionally charged with managing household finances, tend to take the lead when it comes to researching and obtaining credit and protecting their credit scores. But such one-sided financial management in the 21st century is a prescription for disaster, especially if the union falls apart. Those who get into the most trouble after a divorce or breakup, Levin says, tend to be the ones who were in the dark about their partners' borrowing and spending habits.
How should you start the conversation? How about the old, "I'll show you mine if you show me yours," standby?
"People should sit down and show each other their credit reports," Levin says. While the phrase "love is blind" may be romantic, Levin offers a cautionary note: "What you don't want is a situation where people get married and six months later, there's a bankruptcy." Building a foundation for a lifelong union is tough enough without a major financial black cloud hanging over the process right from the start.
"You really shouldn't say 'I do' until you say 'I did have that conversation about spending habits,' " Levin adds. This is particularly important because that old adage about opposites attracting tends to be especially true when it comes to attitudes about money. "Often, you have one person spending [like] the Wild West and one who's much more conservative," he says. It's better to talk out these differences and agree on some compromises before the situation leads to a fight, maxed-out credit cards or other financial woes.
If you're planning to merge your finances, Levin says it's important that you still keep your individual credit histories; for instance, keep a credit card that's just in your name. In the event of a death or divorce, this will go a long way toward smoothing the economic transition from coupled to single. And in the event of divorce, he adds, it's crucial to meet with a lawyer who can guide you through segregating your finances; otherwise, you risk having your ex rack up a bunch of charges and leaving you on the hook for them, which can really put a dent if your good credit score.
So what do you do if the love of your life has a credit report that's less-than-great? (Or abysmal, even?)
Levin offers a handful of solutions, but some of them -- such as co-signing a credit card for your partner -- require an extension of trust and goodwill the more fiscally savvy person might not be willing to extend. (We here at WalletPop have warned readers in the past about the dangers of co-signing credit cards.)
If you do decide you trust your spendthrift sweetie enough to take the plunge, Levin suggests monitoring your balance frequently -- as often as daily -- so you can hopefully catch any spending sprees before they mushroom. Some card issuers will let you set up email or text-message alerts if your balance drops below a certain threshold, which can also be helpful.
Another important tip: Don't discount the value of sitting down and making a budget together, and going over (and over and over, if need be) the details. Levin advises, "It's very important for there to be no surprises and an understanding as to how things will be handled. If one of the partners is not responsible, then both people will lose."
In other words, the saver literally might have to teach his or her partner that really needing a sandwich and a soda is not a good reason to tap the emergency fund, or that going out for drinks with the "boys" (or girls) isn't a good-enough reason to add to a credit card balance.
As with any relationship issue, communication is key. Money is an awkward subject for many people, but if you're really planning to share a bathroom -- and finances -- with this person for the rest of your life, you need to get over it and start the conversation.
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