Before saying 'I do,' you need to have the debt talk

2013-06-02T00:00:00Z Before saying 'I do,' you need to have the debt talkSusan Tompor Detroit Free Press Arizona Daily Star
June 02, 2013 12:00 am  • 

Ashley Matusz and Joe Fisher, both 24, talked about cutting $800 off the flower bill for their wedding reception and saving another $1,000 by forgoing flowers at the church.

But the really big budgeting headaches will hit after their June 15 wedding. Ashley, in Wayne State University's medical school, is expecting $130,000 in student loans.

Many young couples are dealing with delicate conversations about debt, such as student loans or credit cards - or they should be having those discussions this wedding season, financial experts say.

It's best to come clean before saying "I do" when it comes to what some call the anti-dowry - or when you bring debt to the marriage. Some financial advisers suggest "money dates" instead of movie dates to discuss debt, and they say the most important number is not how many exes you have, but what your credit scores are.

If you're going to take someone for richer or poorer, it's far better to know particulars up front. Shoot, if you can tell someone about your old flames, why not come clean and disclose your credit score, too? A low credit score is going to drive up the price of taking out a loan to buy a new car or a home.

"Ever since the beginning, I was like, 'You know, I'm going to have a lot of debt,' " said Matusz, who told Fisher about her plans when they started dating a little more than two years ago. She has completed her first year of medical school.

The couple say they've been careful not to overspend while dating, too. Fisher cooks a lot of "date night" meals instead of going out, Matusz said. Neither has credit card debt.

Couples need to share that credit report information with each other to get a plan going to tackle any problems.

"It's a matter of understanding what the impact of those debts are," said Wayne B. Titus III, a member of the Michigan Association of CPAs financial literacy task force. Titus, an owner of AMDG Financial in Plymouth, Mich., said full disclosure is needed and recommends the money dates to keep the marriage on a financial track.

"I see it as both of our debt, not just hers," said Fisher, who works as a market research analyst for the Paul's TV retail chain in Warren, Mich.

About two-thirds of college grads in the Class of 2013 will leave with some student loan debt. The average debt is about $28,000.

Everyday life, of course, comes with its own set of bills. Matusz and Fisher will pay rent of about $850 a month for a 625-square-foot apartment. They may need to spend $5,000 on a Ford Focus that's coming off lease and trade in Fisher's 2006 Saturn Vue, which has 158,000 miles. They're not considering buying a house yet because they don't know where they'd want to live when Matusz gets out of medical school.

"Sometimes, to be flexible, the best thing is not to buy a home," said Titus, the financial adviser.

But what will all those student loans end up costing?

Matusz isn't certain how much her monthly payments will be. She has borrowed $60,000 so far for the first two years of medical school and expects to borrow another $70,000. She knows the rate is 6.8 percent. Fisher makes about $45,000 a year, and they plan to live on his paycheck, not borrow more for living expenses through student loans, as some graduate students do.

But consider $130,000 in student debt at 7 percent. In that example, a student borrower could end up paying about $1,500 a month for 10 years or $1,000 a month for 20 years, according to Mark Kantrowitz, a student loan expert and publisher of Edvisors.com

Or there could be a monthly payment of $865 if the student loan debt is paid over 30 years.

Six-figure student loan debt isn't uncommon for medical school graduates, according to Kantrowitz, who studied six-figure student loan debt based on 2007-08 data.

Only 1.5 percent of all undergraduate and graduate students graduated with six-figure debt in 2007-08, he said. That involved 0.2 percent of undergraduate students and 6.4 percent of graduate students. But 2.6 percent of master's-degree recipients, 36.2 percent of law school students and 49 percent of medical school students had six-figure student loan debt, Kantrowitz said.

So what's the plan?

For some couples, a heavy student debt load has meant postponing marriage. About 7 percent of adults who took out college loans said they delayed getting married or starting a family because of their need to pay back the debt, according to a 2011 Pew Research study.

Lauren Locker, a certified financial planner and chairwoman of the National Association of Personal Financial Advisors, said anyone who is getting married needs to discuss how they're going to deal with debt.

The average wedding costs $28,400 - close to the average amount of student loan debt. If couples borrow for the wedding and if one has the average amount of student loans, they could be $56,000 in debt before they share the first slice of wedding cake.

For many young couples, she said, expectations for how much money one can make or how well one can live are not in line with real life. She blames the beautiful lifestyles often shown in the news media. Most of the country cannot afford to live like that without going too deep into debt.

"The biggest issue that happens - and, honestly, it doesn't make a difference if you're 22 or 42 - people don't want to talk about money. It's distasteful," Locker said.

She recommends that couples don't merge all of their money into one account. It's too convenient to put all the responsibility and bills on one person. Both need to work out the budget and how bills will be paid. If one person makes $30,000 and another makes $80,000 a year, you don't split the rent bill in half, she said.

Even more key, she said, couples have to ask: What's the plan? What's the goal and strategy for paying off debt?

"They have to make a plan. What are you going to sacrifice to get out of that debt?" said Locker, who founded Locker Financial Services in Little Falls, N.J.

"It doesn't go away."

RESOURCES

• Trying to get out of debt? Run some numbers via a free, nonprofit website to review plans for paying off debt. See powerpay.org

• Consumers can find a certified public accountant at findacpapfs.org

• Fee-only financial planners can be found at napfa.org

• The Consumer Financial Protection Bureau, at consumerfinance.gov, offers information online about taking out student loans and repaying them after graduation. The site also can help you figure out what kind of student loans you have already. Or see studentaid.gov

Susan Tompor is the personal-finance columnist for the Detroit Free Press. She can be reached at stompor@freepress.com

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