If you’re married and struggling to pay off multiple debts, you might consider applying for a debt consolidation loan jointly with your spouse. This approach allows you to roll multiple loan payments into a single monthly payment, which can simplify your household finances, reduce stress, and potentially save money.
Depending on your — and your spouse’s — income and credit score, getting a debt consolidation for married couples could help you qualify for a lower rate and/or better terms compared to applying on your own. However, there are also some downsides to consolidating debt when you get married. Here’s what you need to know.
What Are Debt Consolidation Loans?
A debt consolidation loan allows you to combine your outstanding debt balances into one loan, leaving you with a single monthly payment. In other words, you take out a new loan and use the proceeds to pay off your existing debt.
You can use a debt consolidation loan to combine different types of debt, like credit cards, personal loans, and medical debt. It won’t erase your debts, but it can make things easier by simplifying your payments. If you can qualify for a debt consolidation loan with a lower interest than what you’re paying on your current debts, you could also save money.
Typically, debt consolidation loans are unsecured personal loans, meaning they don’t require collateral. However, some people choose to use secured loans, like a home equity loan, to consolidate debt. Either way, the goal is to reduce the complexity of managing multiple debts and, ideally, save on interest.
Benefits of Debt Consolidation for Married Couples
Debt consolidation offers several advantages for married couples looking to streamline their finances and reduce financial pressure. Here’s a look at the key benefits:
Simplified Financial Management
Managing multiple debts as a couple can be overwhelming, especially when you’re juggling other financial responsibilities like bills, savings, and investments. Consolidating your debts into one loan, and one monthly payment, can make it easier to stay on top of your monthly bills.
A simplified approach to paying off your combined debts can also reduce stress, make it easier to set (and stick to) a household budget, and enable you to work together to achieve your financial goals, whether it’s buying a home, building an emergency fund, or planning for retirement.
Potential for Lower Interest Rates
One of the reasons why many people consolidate debts is to save on interest. This not only saves you money over time but can also help you pay off your debt faster.
When you apply for a debt consolidation loan as a couple, the lender will use your combined income and credit profiles to determine if you qualify and, if so, what your interest rate will be. Applying with your spouse might help you qualify for a lower rate, especially if they have better credit than you. Reducing the overall interest rate on your combined debt can result in significant savings over time.
Recommended: Debt Payoff Guide
Types of Debt Consolidation Loans
There are several types of debt consolidation loans for married couples, each with its own benefits and drawbacks. The right choice will depend on your needs and financial situation.
Personal Loans
A personal loan is one of the most common forms of debt consolidation. These loans are typically unsecured, meaning they do not require collateral like a house or car. With a personal loan, individuals or couples can consolidate various types of debt into one loan with a fixed interest rate and a set repayment term.
A personal loan for debt consolidation can be a smart way to consolidate debt if you qualify for a low interest rate, enough funds to cover your combined debts, and a manageable repayment term. Because these loans are unsecured, your rate and terms will largely depend on your and your partner’s credit profile.
Recommended: How to Use a Personal Loan for Loan Consolidation
Home Equity Loan
If you and your spouse own your home and have built up significant equity, you might consider using a home equity loan to consolidate your debts as a couple. This allows you to borrow against the equity in your home and use the funds to pay off other loans and/or credit card balances.
Home equity is the difference between the appraised value of your home and how much you owe on your mortgage. Depending on the lender, you may be able to borrow up to 85% of the equity you own.
Since home equity loans are secured against the value of your home, lenders can often offer competitive interest rates, usually close to those of first mortgages. However, this type of debt consolidation loan is secured by your home. If you and your spouse are unable to keep up with payments, you could lose your home.
Student Loan Consolidation
In the past, the government allowed married borrowers to combine their federal student loans into one joint consolidation loan, but that program ended in 2006.
Currently, the only way to consolidate federal student loans with a spouse is by using a private lender. With private student loan consolidation or refinancing, you can combine your federal and/or private student loans into a single private student loan at a new interest rate.
If you apply jointly with your spouse, the lender will look at your combined household income and both of your credit scores. If your spouse has better credit or a higher income than you, refinancing with your spouse may allow you to qualify for a lower interest rate than you’d get on your own.
However, not all lenders offer spouse student loan consolidation, which can limit your options. Also keep in mind that refinancing federal loans with a private lender means giving up federal loan benefits and protections, including the ability to enroll in an income-driven repayment plan and eligibility for loan forgiveness programs.
Factors to Consider Before Consolidating Debt
Before committing to a debt consolidation loan as a married couple, it’s important to consider the potential complications and drawbacks of this decision.
Different Money Management Styles
When you take out a debt consolidation loan with your spouse, you’re both on the hook for the payments. So it’s worth thinking about how you handle money as a couple and if you’re okay sharing the debt. Are you both ready to commit to making monthly payments and following a budget together? If managing money together seems challenging, you might want to look into other options like consolidating your debts separately.
Marital Breakdown
If you take out a loan as co-borrowers, you’re both 100% legally responsible for paying it back, even if things don’t work out and you separate. It doesn’t matter if your partner has been paying the loan all along and agrees to continue. If you separate or divorce and that partner stops making payments, the lender will look to you to repay the debt.
Also keep in mind that you can’t remove your name from a joint loan without the lender’s permission. If approval was based on your joint personal loan application, the lender may not be willing to do that. Should your marriage break down, you might end up with payments you can’t afford to make.
Credit Score Impact
Even after you get married, you and your spouse still have separate credit reports. When you apply for a new loan as co-borrowers, the lender will do a hard credit pull on both of your credit reports, which can cause a small temporary dip in your scores. And if either of you misses a payment or falls behind on the loan, it can hurt both your credit scores — even if it’s not your fault.
If you handle repayment responsibly, however, a joint debt consolidation loan for married couples could positively influence your individual credit histories over time.
Irreversible Process
When you consolidate debts with a spouse, the process is permanent. You won’t have the opportunity to revert your former debts back to their original state. Once you use the proceeds of the new loan to pay off your existing loans, those accounts will be closed. This could be problematic if you consolidate federal student loans into a private consolidation loan, since you’ll lose your federal protections like forgiveness and forbearance.
Takeaway
Debt consolidation loans for married couples allow you and your spouse to combine multiple debts into one new loan. This can be an effective way to simplify your financial situation, reduce interest rates, and take control of your debt.
Before you jump in, however, it’s a good idea to discuss how a joint loan will affect your individual credit scores, who will make the payments, and how refinancing will impact your future financial goals.
Considering a personal loan to pay off credit card debt? With low fixed interest rates on loans of $5K to $100K, a SoFi Personal Loan for credit card debt could substantially decrease your monthly bills.
FAQ
Can a married couple consolidate their debt into one loan?
Yes, married couples can combine their debts into one loan if they qualify. The process typically involves applying for a personal loan or a home equity loan in both spouses’ names and using it to pay off one or both of their individual debts.
If your spouse has a stronger credit score than you, applying for a consolidation loan together could improve your chances of approval and potentially secure a better interest rate. However, both partners are equally responsible for repaying the loan, so it’s important to ensure that consolidating the debt benefits both parties.
How will debt consolidation affect credit scores?
Debt consolidation can impact credit scores in both positive and negative ways. Initially, applying for a new loan may result in a temporary dip in your credit scores due to a hard inquiry. However, if you use the loan to pay off high-interest credit card debt and make timely payments, it can improve your credit profile over time. Also, having just one payment can reduce the risk of missed payments, further benefiting your credit.
What are the alternatives to debt consolidation loans?
Alternatives to debt consolidation loans include:
• Balance transfer credit cards: These cards may offer a low or 0% introductory interest rate for transferring existing credit card balances. This can help you save on interest if you are able to pay off the balance within the promotional period. Just be sure any transfer fees don’t negate the savings.
• Debt snowball or avalanche methods: These strategies focus on paying off smaller debts first (snowball) or debts with the highest interest rates first (avalanche) without consolidating.
• Debt management plans (DMPs): Offered by credit counseling agencies, DMPs help negotiate lower interest rates and consolidate payments without taking out a new loan.
Photo credit: iStock/milorad kravic
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