It’s another Q&A Edition of Optimal Finance Daily: Episode 1410. Today's edition is about partner debt and financial obligations.
And I’m your host and personal finance enthusiast, Diania Merriam. We are going to change it up again and address some audience questions on the show… last time was about a month and a half ago, and I’m going to try to do one a month going forward.
If you want to send a question in to be answered here on the show, just send a message to finance AT oldpodcast DOT com
And with that, let’s get to today’s questions and start optimizing your life!
Personal Finance Question 1: “My Partner Believes We'll Never Get Out of Debt”
Our first question comes from an anonymous listener who wrote:
“I am really struggling with paying off my debt. I am trying the snow ball method and am willing to make sacrifices to get my debt paid off. However, my partner is not on the same page as me and believes that we can never get out of debt.
Every time I bring it up and try to discuss my plans on how we can get out of debt and how much easier it will be if we work together, he shoots me down. He downright refuses to talk about it. I’m frustrated because I have two kids and I believe now more than ever (while they are relatively young), we should do whatever it takes to get out of debt. I just don’t know how to deal with my partner not wanting to help get out of this debt which we both contributed to getting into.
He moans about living paycheck to paycheck and I tell him that we don’t have to live like this, but he just won’t budge. Nothing I say or try to say seems to get him to listen. I created a budget which I check regularly, but he doesn’t want to know about it. I control the finances and I say “no” whenever he asks me for money, but he just keeps asking or asks me in another way and I end up giving in. He often uses the money to gamble which he says is his only pass time pleasure.
So far I have managed to pay off two credit cards and close them down but they were small and now I’m left with medium to larger debts left…do I just continue to move forward and try to stay focused on what I can do regardless of what my partner does?”
DIANIA MERRIAM: Thank you listener for submitting this challenging question — I can feel your frustration in reading this and I commend you for taking action in figuring out a way forward.
You are making incredible progress in that you’ve created a budget, you seem to understand the full picture of your finances and can see a way out of debt. So I really wanted to take a moment to encourage you here, that you're on the right track.
I will also say in full transparency, that I’m personally not the best person to answer this question as I’ve never had the experience of managing finances with a significant other. But this is a very common discussion that I see regularly on personal finance groups and forums. How do we get on the same financial page with our partners?
Is It A Financial or Relationship Issue?
As I often do when I don’t know the answers, I sought out help from others in addressing this question and posted it in a couple of Facebook groups — the one I run called “For the Fi Curious” and another great group called Women’s Personal Finance (AKA Women On FIRE). The overwhelming majority of responses felt that this was much more of a relationship issue than financial issue and suggested working with a financial therapist or going to couples therapy.
Now that may seem counter intuitive as that will cost money and you’re trying to put that money towards paying off debt. But if it results in you getting on the same page, it might be a worthy investment in the long run.
You may also want to consider if there is a gambling problem to address here, this could actually be an issue of addiction and not financial illiteracy (which might explain why he’s so unwilling to discuss it). In that case, Gamblers Anonymous might be a good option.
I think it’s important to remember that the way we spend money is a reflection of what we value, and in a partnership, it’s important that our values are aligned. Therapy can help dig into those underlying issues that manifest as money issues.
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Question 2: “How Do I Prioritize Financial Obligations?”
And next, we have this question from Joe who said:
“I’m in my 50s, with debt from student loans (about $50K) and $6K in medical debt spread over a dozen accounts (one is on a payment plan and some are in collections). No credit cards but have a $5,300 car loan at 8% interest. 401K is maybe 12K and stopped contributing to it to balance the budget.
We do not own a house, we rent. I expect this to start going up in cost, but we pay under the market for renting a home. We help with a portion of two kids' community college bills. They work while going to school. I’m also paying for a portion of my daughter’s wedding. We are breaking even by not paying some medical bills, and having student loans on pandemic deferment. Income is 90K.
If we can increase income, is it better to:
1) Pay down some student loans to lower monthly cost.
2) Pay down our one car payment. A year of payments are left.
3) Start 401K contributions again.
4) Save for a home.
5) Pay off medical bills.
Is there a recommended priority? Cash flow vs savings?”
DIANIA MERRIAM: Thank you so much to Joe for this great question on how to prioritize competing financial obligations! So please note that I'm not a financial advisor, and I have VERY limited visibility on your financial situation, but I’ll do my best to provide some food for thought here.
Your Retirement Savings
The biggest issue I see is your retirement savings. In my humble opinion, based on what you shared, if you stay on this trajectory, you will never be able to retire. I strongly recommend you prioritize retirement savings over your daughter's wedding, kids' college costs, and saving to buy a house. I'm sure you don't want to hear that, but the reality is that your kids can take out loans for these expenses, while you cannot take out loans for your retirement.
On student loans, I wonder if you can consolidate and refinance for a lower rate. I'm not a student loan expert but recommend you check out this very informative speech from The EconoMe Conference by Travis Hornsby.
I'd also poke around on his site The Student Loan Planner — this might be a good option for helping you with that $50k of debt.
Your Medical Debt
Regarding medical debt — I'd prioritize what you have in collections and not let anything else go to collections. Medical debt doesn't come with interest and typically should be paid off as slowly as possible so you can prioritize other high interest debt and retirement savings. Usually if you pay anything on it monthly, it won't go to collections.
I once had a $1,000 bill and I paid $25 per month until it was paid off. I would consider not using your HSA to pay these because you can invest the money in your HSA and let it grow for retirement. I'd call all the accounts and negotiate the lowest possible amount you could pay per month (I'm talking $10-$25), and the ones in collections, call and offer them half what you owe in one lump sum (maybe consider pulling from HSA for this just to get them out of collections).
That fact that this is in collections will hurt your credit which might not matter for the time being, because you probably shouldn't be buying a house or opening other lines of credit right now.
So to answer your question about priorities, here's how I see it:
- Contribute as much as humanly possible to that 401k, invest what is in your HSA, and consider starting a Roth IRA.
- Look at refinancing and consolidating student loans
- With a year left on that car, I'd just see it through and not bump up payments so that you can contribute as much as possible to the 401k. But drive that car into the ground and never take on another car payment, buy used in cash in the future.
- Pay off medical bills as slowly as possible but pay something very small every month so they don't go to collections.
If I were you, I would drop saving for a home and prioritize retirement savings. Home ownership has been romanticized as part of the American dream but it really is a luxury, and probably shouldn't be a priority until other savings goals are well taken care of.
Check out the blog Started at 50 – this couple was bankrupt at 50 and still figured out how to retire.
It really is never too late, you can totally turn this around.
Personal Finance Questions: Sign-Off
Well I hope you enjoyed another Q&A edition of Optimal finance daily, featuring a partner's views on debt and financial obligations.
If you have a question you’d like addressed on the show, go ahead and send it over to finance AT oldpodcast.com
I hope you have a great rest of your day, and I’ll see you tomorrow, where I’ll be back narrating your favorite authors, and where your optimal life awaits!