How to Set Debt Reduction Goals as NewlywedsApr 20, 2017
With household and mortgage debt on the rise and continuing to set records in Canada, many couples and families could soon be in need of debt assistance. As newlyweds, the decision of whether to manage your finances, including your debts, together or separately is a choice you’ll need to make. No matter what route you choose to go, you can set debt reduction goals together to help keep your financial situation open and honest. With nearly three in five divorcees saying finances played a role in the breakup of their marriage, it is clear to see the impact debt can have on a relationship. What steps can you take to work together in setting debt reduction goals?
Here are three useful tips to get you started:
- Build a monthly budget together
There will always be shared expenses such as mortgage or rent payments, utility bills, or cable and internet costs that need to be paid each month in addition to debt payments. Sit down together and build a monthly budget. If you are keeping your finances separate, you’ll need to come to an agreement on who is paying each bill. You may need some extra time to build your first budget together, but from there, it should only require some minor tweaks on a month-to-month basis.
The Financial Consumer Agency of Canada has an excellent resource for helping you get started with your budget. The value of working from a monthly budget is you’ll know how much money is going towards bills and debt payments and what you have left over for saving or debt repayment at the end of the month.
- Establish savings and debt reduction goals
As a couple you’ll need to set realistic goals for reducing your debt and boosting your savings. A short-term debt reduction goal could be to eliminate the use of credit cards to ensure you are not taking on new debt with your daily spending. A long-term goal could include paying off all of your high-interest credit card debt within two years.
The good part about reducing your debt is that it can create opportunities to save more of your income. So, as you begin to achieve your debt reduction goals, each of you can adjust your savings goals as more income becomes available in your budget. After establishing your goals, you may ask yourself, “How do we reduce debt?” That’s where the assistance of a debt help professional can come in handy.
- Try effective DIY debt repayment method or seek debt assistance if necessary
Depending on the nature of your debt, you can might be able to pay it off on your own using a targeted repayment method like the debt avalanche or debt snowball. The avalanche focuses on eliminating highest interest debt first and the snowball helps you pay off your smallest debts first. There are advantages to each, so decide as a couple which method will work best for the two of you. In either case, you should adjust your monthly budget to make minimum payments on all your debts except for the one you’ll be paying off first.
If debt problems are becoming overwhelming, or placing a strain on the relationship, it can be beneficial to seek professional debt assistance from a Licensed Insolvency Trustee (LIT). The LIT will listen to your issues either independently or as a couple and explain every debt relief solution that’s available to you, including debt consolidation, a consumer proposal or bankruptcy.
As newlyweds, your finances will become more entwined as the years go on, making it important to keep the lines of dialogue open about the financial and debt situation you face as a married couple. There’s no right or wrong way to set debt reduction goals, but having them is an important step to reduce your debt together as a newly formed family.
For more tips on how to set debt reduction goals join the conversation on Twitter using #LetsTalkDebt.