Ask the Experts: April 2017
Debt, money and many financial topics can be confusing. Many people don’t want to talk to anyone about their financial situation, which can make these issues even more confusing. That’s why, each month, we answer questions on a variety of financial topics.
Please keep in mind that the questions here have been condensed or rewritten for clarity and simplicity.
I’m about to get married, but I have a lot of debt. What happens to my debt after the wedding? Who is responsible for it?
This depends on the type of debt you have. A lot of people think that your spouse automatically takes equal responsibility for all of your debt as soon as you say “I do.” This isn’t true. You are not legally liable for your partner’s debt just because you got married.
Each person’s debt is their individual responsibility. To put it simply, to be considered legally responsible for a debt, you need to have signed the loan agreement.
That does mean that some types of debts are the responsibility of both partners in a relationship.
For example, if your spouse co-signs a loan with you or if the two of you apply for a loan together, then both partners are legally responsible for the debt. If one person defaults on the debt or files for bankruptcy, for example, their partner is 100% responsible for all joint debt.
Another situation where both partners will be responsible for a debt is in the case of supplementary credit cards. This is where one person in a relationship has a credit card and their partner has their own card on the same account. If this is the situation you’re in, you’ll want to clarify the terms with the credit card company.
What can I do about my student loan payments? I’ve been out of school for a couple of years and I have a job, but my payments are really high and I’m struggling to make them.
Student loan debt is a serious issue for many young people. With education costs increasing yearly, more and more people find themselves with large amounts of debt when they graduate.
Adding to this issue is that government-backed student loans can’t be included in a bankruptcy or consumer proposal unless you have been out of school for at least seven years (five years if you successfully apply to the court stating that your loans are causing you undue financial hardship).
One option that you may want to consider is the Repayment Assistance Plan that is available from the Government of Canada. You will need to contact the National Student Loans Service Centre (NSLSC) and your provincial or territorial student financial aid office to discuss repayment options and to apply for the program. Under the program, depending on your income, you may qualify for reduced monthly payments.
Of course, if you’re struggling to pay your loans, you’ll also want to look at your current budget as well as your other debts. Spending too much in some areas (including on debt repayment) could make it difficult to afford your student loan payments.
Should I consolidate my debt?
Debt consolidation is a popular topic and many people have questions about it. The decision to consolidate your debt (or not) will depend on your financial situation. While debt consolidation is a well-known option, it’s not necessarily the best one available for everyone.
When you consolidate debt, you take several debts and turn them into a single one. This is often done by taking out a new loan and using this loan to pay off your debt, leaving you with a single loan to pay. This gives you one monthly payment to make instead of several. Simplifying your debt this way can be helpful for some people.
The main aim of debt consolidation is to get a consolidation loan that has a lower interest rate than the overall interest that you were paying on your individual debts. This will save you money on interest payments and could make your debt more affordable for you.
It’s important to note that while debt consolidation could lower the amount you pay in interest (and therefore save you money) it won’t reduce the overall amount you owe. Plus, taking out a consolidation loan doesn’t stop you from accumulating new debt. If your debt is growing because you keep putting new charges on your credit cards, debt consolidation doesn’t put a stop to this.
If you’re not able to afford your debt payments, you might want to look at other solutions such as a consumer proposal, instead of a consolidation. If you are unable to pay your debts as they come due, doing a consumer proposal allows you to pay your creditors only a portion of what you owe them, over a period of up to five years. Thereafter the rest of the debt is forgiven.
Speaking with a financial expert about your particular situation can help you determine the right option for you.