Five Financial I-Dos for Newlyweds

SBLI of Massachusetts

July 11, 2011

More and more, young couples are finding the only thing that lasts longer than the memories of their wedding day is their seemingly inescapable debt.

For starters, the average wedding in America costs more than $27,000, and that doesn’t include the engagement ring or the honeymoon. Combine those costs with preexisting college loans and car payments, and it is no surprise many couples begin their marriage six figures in the red.

Even more daunting—mortgage payments and the skyrocketing cost of raising and educating kids looming on the horizon.

The question is, what can a young couple do to cope with their newfound financial stress?

Here are five stress busters:

Discuss it. Let’s face it: talking bills and balances isn’t exactly romantic. However, experts agree being honest and confronting your financial situation early on is a great way start a marriage. Disclose all of your debt up front. Determine whether you are spenders or savers and agree to make the necessary adjustments. Then, compute your combined net worth (total assets minus total liabilities) and work together to create a budget that will help your net worth increase faster.

Reduce your credit debt. A lot of couples instinctively reach for their credit cards to fund part of their wedding expenses, but many don’t realize it could take years to pay the balance.

The quicker you rid yourself of credit debt, the better. This is particularly true if you plan on buying a home soon. The lower your credit debt, the higher your FICO score, which is the Fair Isaac Corporation’s tally used by mortgage lenders to determine your credit worthiness. Also, lenders are more willing to extend you a larger mortgage if you have a good debt-to-income ratio.

Build an emergency fund. Never has this been more important than today! In January 2008, the nation’s unemployment rate was 4.9 percent. Just one year later, it was 7.6 percent—a 65 percent increase. A general rule of thumb is to save three to six months of salary in case of emergency. Also, being able to pay bills while unemployed will help keep good credit scores intact.

Protect your spouse and your assets with term life insurance. If dealing with your newfound debt seems stressful today, imagine if something happened to you or your spouse tomorrow. In that case, the surviving spouse would likely be responsible for all of the debt.