Last week I gave a talk at Powell's bookstore here in Portland. During the question-and-answers session, one woman posed an interesting question. (I've forgotten her name, so let's call her Kim to make things easy.)
Kim has been aggressively paying down her debt, and is pleased with her progress. However, her boyfriend thinks she's doing it wrong. If I understand correctly, Kim's boyfriend believes she should pay down each debt part way (perhaps a half or a third) so that none of her obligations is near its limit. He believes that this will increase Kim's credit score. Kim wanted to know if this was a good idea.
Too much control
Obviously, it's difficult to give a complete answer without knowing more about the situation. Still, I think this is a great example of how financial decisions are often about more than just the math involved. There are three basic approaches to debt here:
- Tackle the debts in order of interest rate, knocking off the high-interest debts first. Mathematically, this is the best option because — if you follow through — you'll pay less interest in the long run.
- Tackle the debts in order of balance, starting with the debts you owe least on first. Psychologically, this is usually the best option because you can get some quick wins, knocking off several debts in a short amount of time. This is the method Dave Ramsey recommends. (And so do I.)
- Or, as Kim's boyfriend recommends, try to coordinate payments so that each debt is paid down to a certain level before focusing on a specific obligation. For various esoteric reasons, this method should have the greatest impact on your credit score.
My recommendation during the question-and-answer period? No surprise: I told Kim that she should use the approach that makes her most comfortable, the approach that actually leads her to pay off her debts most quickly. I think it's great that her boyfriend is eager for her to improve her credit score, but I think it's dangerous to be dogmatic, especially if it involved becoming controlling about another person's financial situation.
I believe it's vital that both partners have an equal say in the finances, and that one person doesn't take the role of “controller”, especially if, as in Kim's case, it's to move from a perfectly good option to a seemingly better option. If the option is good and your partner is happy with it, then leave well enough alone. Why pursue financial perfection at the cost of your relationship?
Not enough control
On the other hand, it's important not to be completely ignorant about your partner's financial situation. Recently, an anonymous user at Ask Metafilter posed an interesting question. She writes (in part):
My husband and I have been married for almost nine years and we have one giant recurring problem. For our entire relationship, even before we got married, he's been full of nasty financial surprises.
The trick is that aside from all of the bullshit surrounding finances, Sam is a fantastic husband and father to our kids. I've got health issues — big ones — and Sam has been unfailingly supportive. He's considerate, sweet, with unending patience with the kids, and just an overall good guy, except for this one, glaring area.
The full question describes the “nasty financial surprises” in detail. Suffice it to say that Sam, the man in this relationship, has accumulated some “surprise” debt, and has lied about his financial situation.
I've thought a lot about both of these situations. I feel like Kim's story and Sam's story show two extremes:
- In the first instance, one partner may be trying to exert too much control over a financial relationship.
- In the latter case, the partner isn't exerting enough control over the financial relationship.
This made me wonder: How do you find balance in a financial partnership? I'm wondering how do you balance the fact that both partners are adults while recognizing that sometimes people need help?
Striving for balance
In my own relationship, Kris has always given me the space I need. Because we have separate finances, she's had to exercise extreme trust that I'll follow through on my obligations. Even when I was in debt, I did my best not to let her down. Sure, I may have been struggling to make ends meet, but I never missed a payment. I always paid my debts and other monthly obligations before spending on fun.
Still, I'm sure she was nervous at times. I remember that in 1994 she was reluctant to buy a house because of my debt. I think if she'd known the true extent of my financial problems, she might not have been so easy-going about the situation.
All of this is a stark reminder that money isn't just about the math. There aren't any magic formulas to help you decide what to do if one partner is a saver and another is a spender.
So, I'm wondering how you folks handle these situations in real life. I'm not just talking about the spender/saver dichotomy, and I'm not just talking about joint and separate finances. I want to know how you decide how much control each partner has over the finances.
Regardless of whether your finances are joint or separate, how do you handle situations like these? If you were dating, would you demand that your partner's credit score be a priority? Would you insist that his debt be retired (or reduced to a certain point) before making a long-term commitment? Or are finances completely irrelevant?
Author: J.D. Roth
In 2006, J.D. founded Get Rich Slowly to document his quest to get out of debt. Over time, he learned how to save and how to invest. Today, he's managed to reach early retirement! He wants to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you reach your goals.