When is the right time to pay off a significant other's debt?

[Joel]

When is the right time to pay off a significant other's debt?

Serious relationship of around 3 years, lived together the last 2 years. Planning to get married.

Would you wait until after you are engaged? after you are married? before that?

Background - We live in California:
Me = $50k in liquid assets. no debt. Most of the money has the goal of "future savings", preferably for a house.
SO = $21k in student loans (ranging from 4.5% to 7% interest). $18k in car loan (1.9% interest).

Personally, I'm not concerned about the car loan as it's at such a low interest rate. I would like to have the money set aside to pay it off, but I will invest that money while I am paying it off. I can make 1.5% on my checking account alone, so that's about a wash almost in and of itself.

We have verbally committed to being able to pay off the student loans before getting married. That wedding will likely cost around $20k once you include the ring, the various parties, and the honeymoon. Obviously, we will try to lower that number but I would rather play it safe with a high estimate. Huge families, and it would be hard to cut it out completely. Needless to say, I don't want people talking about the cost of the wedding. I'm only asking for input on the debt repayment part.

If we were married, I would have no doubt about paying off the student loans before I save for a house or invest my money. That guaranteed 6% interest is hard to beat. She agrees that we want the student loans paid off before being married. It's hard for me to hang onto $50k cash knowing that I have the ability to knock out those student loans, and that requirement of eliminating the student loans before marriage seems silly.

What do you guys think?

Here's the options as I am seein them:

1. Keep finances seperate until marriage. Forcing her to pay off her student loans before the wedding, while I save for the wedding. This could take 4-5 years, which seems like pushing the wedding date out very far. She wants to be married in the next few years (we are in our mid-20s) and wants to begin having kids by 30.

2. Propose. Get married. Ignore the timeline of paying off student loans. Once married, use my extra money to eliminate the student loans in their entirety. This would allow us to get married as soon as I buy the ring and pop the question. Ha! Then save for a house together.

3. Propose. Use my extra money to eliminate the student loans in their entirety. Then, make sure WE have enough saved for a wedding. Get Married. Then, begin saving for a house together. Same situation as above, but I would be paying the loans before the wedding date. $100 per month in savings on the student loan interest.

We plan to get married. There's no question about that. The question is more about the timing and logistics of it. How to get married in a way that makes sense financially. There are definitely various savings benefits to getting married. I estimated at least $300 per month worth of savings on dental insurance, health insurance, car insurance, taxes, and student loan interest. We have about $550 per month that we are able to save between the both of us currently, and with the student loans out of the way, that amount jumps up to $900 per month. My original stance was #1, but it seems more and more than #2 or #3 makes the most sense.

#2 or #3 - what input do you all have?

[brewer12345]

I like door #2.  Once you are married your money is hers as well, so you might as well knock out whatever loans remain.  Before marriage?  There's many a slip twixt cup and lip.

[ShavinItForLater]

Definitely #2, get married first.  Too many things could go wrong the other way around.  It's easy to think it could never happen to you.  It can.

[LauraG]

It sort of sounds like your s.o. would like to pay off her own debts pre-marriage so that you'll be going into the marriage / financial partnership on a more even footing. Doing so might have important psychological / partnership benefits for her or both of you, so I wouldn't dismiss it out of hand. My partner and I are legally married, but we stay responsible for our own financial lives (retirement savings, other investments, etc), which gives us a sense of independence that I like.

If that psychological benefit of taking care of her own loans is part of the equation, how about a fourth option: Get married ASAP (since it sounds like there's significant other financial benefits of marriage for you two) but keep your finances somewhat separate until she pays off the debt.

[apennysaved]

I would wait until marriage before paying off her debt just beacuse you never know.  I was in a similar situation except that I brought a home with a mortgage and no other debt into the marriage plus a large 401k whereas my fiancé brought law school student loans & some credit card debt (fun!).  Needless to say, after we got married, we tackled our debt (what's mine was his & what's his is mine) and combined were able to knock out all debt except the mortgage pretty quick.  If I had waited for him to pay off his debt, we would have had to wait a few years to get married (dated for 2 years before marriage already).  But, I know how you feel-especially because I was itching to pay off the credit cards.

What is important is that we were on the same page regarding finances which it seems like you two are as well.  There have been times over our 7 year marriage (and counting) where he has made more or I have made more, but we have the same goals and being together has helped us achieve them more quickly. Over the long run, what you initially financially brought into the marriage would matter less and less.

Best wishes!!

[Catbert]

Option 2.  I can't image paying off someone's debts that I'm not actually married to.  Too many things happen between long-time significant others and the wedding day.  It also seems foolish/counter productive to wait until she's paid them off if you both want to get married sooner.

[lifejoy]

I am in the same situation as the OP, so keep the responses coming!

I was thinking of paying off my SO's debt before the wedding, so that we could go into a new chapter of life together totally debt free.

[rubybeth]

Option #2 is the safest.

[lentilman]

Get married, then use her earnings to pay off the loan after that.  (You can pay for living expenses 100% if needed).  It may take slightly longer, but she will have the satisfaction of taking care of obligations she accepted.  This will also allow you to keep the cash for a down payment if needed.

[Zamboni]

Wait until after you are married to pay any debts of your SO.  Once you are married, sit down and plan your financial lives out together, because at that point it is a joint decision. 

[aj_yooper]

Wait until you are married.  Then, like Zamboni said, plan out your financial lives together.  Personally, I would keep the cash and cash flow SO's student loans.  The amount is  manageable.  Cash is hard to build up.  You don't have to cure her debt.

[imbros]

Definitely #2, get married first.  Too many things could go wrong the other way around.  It's easy to think it could never happen to you.  It can.

+1

[impaire]

Loan her the money--get a notarized IOU or whatever it would take to make the debt proven in front of a court of law. Let her pay off her debts. Get married whenever you please. Tear that IOU in tiny pieces (and place the pieces in your "recyclable" bin).

That's what I did. YMMV.

[Argyle]

What does she think is the best way to do it?

[chicagomeg]

Just to play devil's advocate here, my now-husband & I combined finances 15 months before we got married. I had a substantial amount of debt and he had a substantial amount of savings. We worked together to pay off my loans as well as pay for the wedding. I'm not saying it would work for everyone but starting our marriage with that kind of trust between us can't be a bad thing. I freely admit it had the potential to end badly but for us, it didn't and I wouldn't have it any other way.

[bogart]

I did about what mlipps did, and did it knowing it wasn't sensible -- I took to contributing to DH's expenses to allow him to continue to pay his mortgage (etc.) without taking on debt.  And I knew if we ended up not getting married, I'd be out the bucks (we did, I wasn't).  But, I was also perfectly clear that the people I was really helping out either way were my stepkids-to-be (or not, depending), and I was OK with that.

However, I'd say do as I say and not as I do, and personally I wouldn't recommend what I did (including to myself!) even though I did it anyway...

[mushroom]

Sure, #2 is probably the right answer.

But my now-husband gave me a check for some large amount of money (maybe 30K?) for my student loans when we were engaged but not married, and it was really nice to know how fully he trusted me because I wouldn't have blamed him at all if he had wanted to wait until after marriage (I even brought it up to him and he thought it was silly to wait while the loans accrued interest). And to be fair, let's say he had given me the check after we were married and then we got divorced shortly after - I would guess that he would've been out the money anyway (not that I know anything about how things are split in divorce proceedings, so I may be completely wrong there).

[Dicey]

One more vote for option #2.

[hlca]

After you get married.  Not trying to be depressing, but if you get divorced, you can be reimbursed for payment of a spouse's pre-marriage debt.  I think it's Cal. Fam. Code 2640.

[impaire]

Not trying to be depressing, but if you get divorced, you can be reimbursed for payment of a spouse's pre-marriage debt.

Wait... Not trying to out-cynic the depressing, here, but isn't that a reason to pay the debt before marriage? If you can be reimbursed for money you lent before getting married but not after?

[but any way you do it, I vote for pay off high-interest debt ASAP, since in your best estimate that is debt that will affect the marriage you're about to enter for the rest of your life. In fact purely financially, shouldn't you both elope and pay off the debt ASAP, and then use your new and improved financial solution to save for the official wedding?]

[unpolloloco]

There may be tax implications of option #3 FYI - another reason to go for #2

[Fuzz]

If FI or buying a house is important, can you raise the idea of her getting rid of the car and its loan? 18K in a car loan is a lot relative to your stash, and to your savings rate. If the best you can save is $900 a month combined, then you probably can't justify that expensive of a vehicle. That seems like a huge expense, especially given that your insurance on a 18K-plus vehicle (assuming she's not upside down already) is costing you more than insurance on a 8K car that gets you to the same place (or a 2K car for that matter)).

It would be a tough conversation, but the car is way to much of a financial burden relative to the wedding 20K, student loan 20K and your goal of a house downpayment ??K.

Just my opinion. Good luck.

[dragoncar]

There may be tax implications of option #3 FYI - another reason to go for #2

Agree.  There may be ways around this, but it's not pretty (something like loaning her the money in exchange for a note, which you can forgive after marriage).

[Dicey]

So Joel, what did you decide to do?

[ScottEric]

Great question!

My wife of 7 years and I just looked over our finances and decided to pay off her student loans by cashing in my mutual funds. 

On the one hand, I wish we didn't have to cash in our only investment outside of my 401k.  On the other, I'm glad we won't have to make any more payments to Sallie Mae.

[scrubbyfish]

how about a fourth option: Get married ASAP (since it sounds like there's significant other financial benefits of marriage for you two) but keep your finances somewhat separate until she pays off the debt.

I'm with LauraG on this. I wish I could be more romantically inclined, but I'm always the financially responsible one and bailed out several partners before I learned to stop doing that. I wouldn't do that again, even though I would still naturally feel inspired to. I think it's best she works out a way to pay off her own loans -or at least a really hefty percentage of them (and you could surprise her by paying off the final few). If I were her, I would actually feel better about that -I would feel proud of myself and very competent, aware that I can get by on my own if needed, and not in the relationship out of a sense of obligation/debt.  I think all of those qualities really serve a relationship.

Does marriage in your area leave both partners equally responsible for debt incurred by one while single?

[CommonCents]

how about a fourth option: Get married ASAP (since it sounds like there's significant other financial benefits of marriage for you two) but keep your finances somewhat separate until she pays off the debt.

I'm with LauraG on this. I wish I could be more romantically inclined, but I'm always the financially responsible one and bailed out several partners before I learned to stop doing that. I wouldn't do that again, even though I would still naturally feel inspired to. I think it's best she works out a way to pay off her own loans -or at least a really hefty percentage of them (and you could surprise her by paying off the final few). If I were her, I would actually feel better about that -I would feel proud of myself and very competent, aware that I can get by on my own if needed, and not in the relationship out of a sense of obligation/debt.  I think all of those qualities really serve a relationship.

Does marriage in your area leave both partners equally responsible for debt incurred by one while single?

Whoa, how is a joint decision after marriage to pay off the loans in order not to pay 7% interest equate to being in the relationship for obligation, an inability to get by on one's own if needed or incompetence?  Seems a mighty big leap.  Seems to me a payoff would instead be the smart money move of the new married financial unit.  It might be different if she was regularly missing payments/having issues.   It's not irresponsible "bad" debt such as credit cards and consumer spending but rather so-called "good debt" (as far as debt can be good) for student loans, mortgage, etc. that is investing in herself.  I don't advocate paying it before marriage (door 2 for me or Impaire's suggestion), but neither do I think it's a smart money or marital move to watch her pay it off herself, hurting the family financial position and postponing family decisions like a home or kids so she can "feel proud."

[scrubbyfish]

Whoa, how is a joint decision after marriage to pay off the loans in order not to pay 7% interest equate to being in the relationship for obligation, an inability to get by on one's own if needed or incompetence?  Seems a mighty big leap.

My take is definitely a leap, yes, if a person is living happily with none of my hangups :)   

My post shows my own internal issues. They're real for me, as well for my partner's ex (who he rescued during and after their marriage for the sake of peace), and for several of the men I've dated (who did not believe in their financial competence and sought support from parents then partners), but these are ours, yes, and very possibly NOT shared by the fiancee of the OP. And I definitely hope that's the case, because I think fewer hangups can make for a much happier life! I just wanted to share one more perspective and, granted, it was reflective only of messy me and my messy peers.

My partner paid off his wife's student loans, then supported her when she decided not to work for many years. After they split up, she took him to the cleaners. It's my sense that she developed a feeling of financial incompetence, thus dependence. Not the end of the world, but it sure woke my partner up. I've had similar experiences which have led me to be more careful. My partner and I each became aware of our poor patterns and eventually opted to maintain separate finances until we both get a grip on the aspects of our psychology that lead us both to rescue and want to be rescued. For some of us, there's value in that worth more than 7%.