Joint Debt Management Plans: Pros and Cons
Money is the No. 1 cause of stress in nearly every survey of marriage, though you probably could substitute the word “debt” for “money” and more accurately target the real cause of tension.
Debt-related stress usually doubles when shared with a partner. That is why one of the most critical decisions a couple will make — presumably before marriage — is whether they will treat money as a joint asset or an individual asset.
Put more precisely: Do you plan to share responsibility for the bills or deal with them individually?
Your answer has a lot of financial ramifications.
When both sides are prospering, it hardly matters. There is plenty of money to pay down debt, so it probably doesn’t matter if one partner pays the other’s bills or if they just go Dutch. However, when the bills don’t get paid, it does matter whether a couple has a joint account or an individual is responsible for certain expenses.
That is especially true if a husband and wife team decides to use debt management programs as a way to consolidate debts and ease some stress. The National Foundation for Credit Counseling (NFCC) says that 42% of the people involved in debt management programs are married or living with their partner; another 35% are single; and 20% are divorced or separated.
If you’re looking at a debt management plan to help you get afloat financially, it will matter how you classify your debt.
What Is a Joint Debt Management Program?
A joint debt management program is a plan for a married couple to eliminate debt, with help from a credit counseling agency.
Couples can enroll in a joint debt management program if they are co-signers on a joint account. Credit card accounts are the most obvious example of this. Most married couples have co-signed the agreement and both names are on the credit card account — so they both are responsible for the debts, regardless of which person made the purchase.
If the credit card bills get out of hand and the couple seeks a debt relief plan, that means it’s time to investigate a joint debt management plan. The key here is that sharing an account means sharing responsibility for paying the charges on that account.
In order for a husband/wife team to participate in a joint debt management program, both names must be on the account or both partners must agree in writing to share responsibility for the account.
How Does a Joint Debt Management Program Work?
The steps to enroll in a joint debt management plan are almost identical to the steps taken when an individual enrolls.
Both spouses must take part in the following procedures:
- Participate in a 30–40 minute credit counseling session and answer questions on income and expenses to determine how much disposable income is available to pay off debts.
- Agree to have credit report pulled to verify personal information and bills owed.
- Help counselor with preparing an affordable budget to present to creditors.
- Agree to monthly payment that will be distributed to creditors to eliminate your debt.
Disposable income is the amount of money left each month after subtracting necessary expenses — food, rent, utilities, transportation, insurance, etc. — from monthly income. For example, if necessary monthly expenses add up to $4,300 and monthly income is $5,000, there is $700 of disposable income to put toward eliminating debt.
It is important that the husband and wife understand that both parties are accepting responsibility for the debts they jointly accrued and both agree to the terms and conditions of a DMP.
Typically, this will be done when both parties are present and a phone call is placed to a credit counseling agency like InCharge Debt Solutions. If the timing for that is a problem, there are workarounds.
Each side could call in and go through the step-by-step process on their own, but must make the credit counselor aware that they are enrolling in a joint debt management program. Each side also could go online independently and work through the credit counseling session that way.
Awkward Situations for Joint Debt Management Plans
There are several conditions under which spouses can choose to participate in a joint debt management program — or choose not to participate!
Again, it goes back to the choice of having joint or individual accounts. When a couple decides to have individual credit card accounts, that is when situations get awkward.
For example, if the husband is the only one who signed the card agreement, he alone is responsible for the debt, even if he allowed his wife to use the card as an authorized user.
In this case, the husband could enroll in a debt management program, but his wife could choose not to participate, because she is not responsible for the debt.
Another awkward situation arises when a couple decides to have both joint and individual credit card accounts. Legally, the two are responsible for whatever spending is done on the joint account.
By contrast, only the person who signed up for the card is responsible for spending on an individual account.
If the combination of bills — joint and individual — gets out of hand, a joint debt management plan is still possible, but tricky. The couple must talk to a credit counselor to decide upon one of two options. First, they could agree to put all debts into one account and pay them in total. Alternatively, they could decide to put only the joint account in a debt management program and let the individual whose name is on the card be responsible for the bills associated with that card.
It is a very uncomfortable situation and one that should be part of the discussion on whether to have joint accounts or go the individual route.
Cautions about a Joint Debt Management Program
There are times when a joint debt management plan won’t work for a couple — it’s important to understand these situations. Just because you are married, that does not mean you are responsible for your spouse’s debts.
As mentioned above, if you did not sign the credit card agreement, personal loan or other unsecured debts involved in a debt management program, you are not responsible for that debt.
For example, if you are just an authorized user on your spouse’s credit card, you are not responsible for that card’s debt, even if you made purchases with the card. By law, you would not have to join your spouse in a DMP.
However, you may feel guilt or responsibility for spending with the card and decide to enroll with your spouse. That would be your choice. You are not forced to do that.
What Are the Advantages of a Joint Debt Management Plan?
When rent, auto loans, student loans — and especially credit card debt — reach uncomfortable limits, the stress on a marriage can be overwhelming.
Debt management programs are proven as a successful way for consumers to eliminate debt. More than 177,000 participated in debt management programs in 2015 and they retired a combined $1.1 billion of debt.
Hopefully along the way, a couple learns that both sides spend money, both sides need to live on a budget, both sides need to plan and discuss the approach to spending so that money doesn’t end up being the prime factor in a breakup.
Enrolling in a joint debt management program lets a couple share the responsibility for spending and also lets them work together to turn their finances around. They also get to share the sense of relief — more often, joy! — that comes from successfully completing a debt management program and restarting life debt-free.
- Holland, K. (2015, February 4) Fighting with your spouse? It’s probably about this. Retrieved from http://www.cnbc.com/2015/02/04/money-is-the-leading-cause-of-stress-in-relationships.html
- Todorova, A. ND. The Six Financial Mistakes Couples Make. Retrieved from https://www.key.com/html/couples-financial-planning-articles.html