Joint Debt Management Plans
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 living together — is whether they will treat money as a joint asset or individual.
Put more precisely: Do you plan to share responsibility for the bills with your partner or deal with them individually? Your answer has a lot of financial ramifications.
When both sides are prospering, it hardly an issue. 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 go Dutch.
However, when money is tight and bills don’t get paid, it does matter whether the partners have a joint account or an individual is responsible for the account. That is especially true if they decide a debt management program is the way to consolidate payments and ease some stress.
Debt management programs allow you to enroll individually or as a couple, but if you go in as a couple, both parties must sign the agreement. The National Foundation for Credit Counseling (NFCC) says that 38% of the people who receive credit counseling, the first step in a debt management program, are married or living with their partner; another 38% are single; and 21% are divorced or separated.
If you’re looking at a joint debt management plan to help you get afloat financially, it will matter how you classify your debt and you should research the program to make sure it’s right for your situation.
“Consumers should be cautious about enrolling in a joint debt management program if they are not married and/or not associated with the account at origination or anytime thereafter,” Bruce McClary, vice-president of marketing at the NFCC, said.
What Is a Joint Debt Management Program?
A joint debt management program is a plan for a couple to pay off debt, with help from a credit counseling agency.
Whether married, or just living together, couples can sign up for a joint debt management program. How much one partner makes or owes is not a factor.
The idea is to put together a single plan to eliminate both parties’ debt, regardless of which one brings more debt to the table. The determining factor, in most cases, is a willingness by both sides to take responsibility for each other’s debts.
If both names are on the accounts, both parties must enroll and sign the agreement.
If only one person’s name is on the account, the couple can still sign up for a joint debt management program, but both people must sign the agreement.
In a joint debt management program, the couples pool their unsecured debts, usually credit cards, and a nonprofit credit counseling agency works with creditors to arrive at an affordable monthly payment. That payment is determined by the amount of disposable income the partners have every month and creditor guidelines, based on how much is owed.
Another option is to enroll in the debt management program as an individual. In that case, the debts involved have only one person’s name.
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 parties must take part in the following procedures:
- Participate in a 20–30 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 their credit report pulled to verify personal information and bills owed.
- Receive a debt management program recommendation from the counselor
- Help counselor with preparing an affordable budget to present to creditors.
- Agree to a monthly payment based off disposable income 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 couple understand that both parties are accepting responsibility for the debts and both agree to the terms and conditions of a debt management program.
Typically, this will be done after both parties get on a phone call 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.
Things to Consider with Joint Debt Management Plans
There are several conditions under which spouses or partners can choose to participate in a joint debt management program — or choose not to participate!
Again, it goes back to the whether you have joint or individual accounts. When a couple decides to have individual credit card accounts, that is when situations get awkward.
For example, if only one spouse/partner signed the credit card agreement, that person alone is responsible for the debt, even if the other person was allowed to use the card as an authorized user.
In this case, the spouse/partner could enroll in a debt management program, but the other party could choose not to participate, because they are 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.
Is a Joint Debt Management Program the Best Option?
A joint debt management plan is a good choice for couples struggling to get out of debt, but there are plenty of factors to consider before deciding whether it’s the best option.
The first factor is how willing you are to share responsibility for someone else’s debt. Remember, if you are not a co-signer on the account, you are not liable for the debt, whether you’re married to the person or not.
The next thing to discuss is whether one spouse/partner brings significantly more income – or debt — to the table. If you are the side with more income, you will be paying off a greater share of the debt because the monthly payment is based on the “combined income,” not the individual’s income.
On the debt side, if you owe more than your spouse/partner, you will benefit greatly from having someone share in paying it off.
Another factor to talk about is what happens if you break up? If both sides continue making payments, all is well.
However, if either side misses two payments in a row, the creditor likely will cancel the agreement and all concessions made (reduced interest rate, waiving late or over-the-limit fees) will be revoked.
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 relationship can be overwhelming.
Debt management programs are proven as a successful way for consumers to pay off credit card debt. More than 340,000 people participated in debt management programs in the U.S. in 2019 and they retired a combined $1.8 billion of debt.
In short, the program works if both parties are committed to paying off 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.
If you need more information before making a decision, contact a credit counselor at InCharge.
About The Author
Joey Johnston has more than 30 years of experience as a journalist with the Tampa Tribune and St. Petersburg Times. He has won a dozen national writing awards and his work has appeared in the New York Times, Washington Post, Sports Illustrated and People Magazine. He started writing for InCharge Debt Solutions in 2016.
- Todorova, A. (ND) The Six Financial Mistakes Couples Make. Retrieved from https://www.key.com/html/couples-financial-planning-articles.html
- Pangestu, D. (ND) Joint Debt Problems: How to Deal with and Avoid Joint Debts. Retrieved from https://www.nomoredebts.org/blog/personal-debt/joint-debt-problems