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Jun 1, 2017

Secrets And Lies: Why Hidden Debt Can Hurt More Than Your Relationship

by Lisa MacColl

A week after her husband died suddenly, the widow answered a knock at the door to find a business owner holding her husband’s bar tab. Already reeling from the unexpected funeral expenses, the several-hundred-dollar bar tab was an added blow she knew nothing about.

After his wife left him on Christmas Eve, a husband found a bank statement for a credit account he knew nothing about. After further investigation, he found three more credit cards and debt in the amount of $60,000. One line of credit was secured by the family home and it was past due. It was all a surprise.

These scenarios are far more common than you might think. In by-gone days, it was rare for a wife to have credit of her own, which often caused problems for her if the husband died unexpectedly and all the household expenses were in his name only. The tradition roles of man as breadwinner and wife as caregiver have fallen by the wayside. It is not unusual for men and women to keep some, if not all their finances separate, and split expenses such as mortgage and utilities equally.

As long as it works, and everyone can meet their individual obligations, to each his own, right? But what if it stops working for one person? Unexpected or secret debt can put a real strain on the relationship and the family future.

Why It Matters

Regardless of how your personal family finances are split out, some obligations fall on both people in a relationship. For example, the title of the matrimonial home is normally expected to be in both names, as is the mortgage, regardless of who takes care of the costs in practice. So, let’s say you get yourself into a financial mess, and want to do a debt consolidation loan without your partner’s knowledge. Even if your partner covers all the house expenses, if your name is on the deed, those expenses will be included in your debt ratio and will impact whether you qualify for the loan. If you work part-time or are self-employed, that inclusion can put your debt ratio over the acceptable limits.

If your name is on the title and the mortgage, and you try to do a solo consumer proposal to dig yourself out of debt, you will be required to include any equity in the home as part of the calculation of your repayment, even if you have no intention of selling the property to cover the debt. If one of your creditors balks, you could be forced to sell the home and that is not a surprise anyone wants for the person you share your life with.

Despite your best efforts, debt can accumulate quickly. Does this sound familiar: your paycheque goes to paying your credit cards, and you have nothing left for spending, so you charge items to the credit card and start again. Or you use one credit card to pay another and give yourself an interest double whammy. Consumer credit card rates average 15-23% (and more) and making the minimum payment barely makes a dent after the monthly interest is applied. If you carry a balance, most credit card companies give you an estimate of how long it will take you to repay the amount if you make only minimum payments. Multiply that by three or four cards, and the dollars can add up fast. A sudden job loss or illness, and you can go from managing to collection calls in a couple of months. A pattern of late or less than minimum payments can start to negatively impact your credit rating quickly. And if the other person also has debt that you don’t know about? Recipe for disaster.

What To Do

  1. Add it up. If you’ve been tossing the bills in a pile unopened every month, and just making minimal payments as you can, it’s time to stage an intervention, open the bills and add them up. Time to own up.
  2. Check your credit. It’s a good idea to check your credit report at least twice a year, especially since there have been many high-profile identity thefts. Check the report for inaccuracies, or for credit cards that you didn’t apply for or don’t recognize. You may find there are store credit cards that you opened to get an extra percentage off at the cash, and then forgot about. If you don’t use it, close it. If there are mistakes or discrepancies, call the credit reporting agency right away. Equifax Canada and TransUnion are the most well-known credit agencies, and there are many other online versions as well. Checking your credit score also gives you a better idea of what options might be available to you.
  3. Have the conversation. This is where things can get awkward. Your partner may have no idea you have been struggling and this will come as a shock. Have some consideration about timing: dumping it as your partner is walking out the door to work is unfair. Before coffee is just mean, and late at night means no one gets to sleep that night. Make some time when you can talk and walk away if need be. If you have children, try to arrange for them to be away when the conversation takes place. This is not a problem the children need to help solve.
  4. Try to stay objective. There may be yelling. There may be accusations. There may be silence. There may be anger. There may be walking away. Remember, you’ve been living with this situation for a while now, but your partner may not have an inkling of what has been going on, especially if you keep your finances separate. Getting defensive isn’t going to help anything. If things get too heated, take a time-out. No one likes to be blindsided.
  5. Talk to a financial expert. While it can be excruciating to admit you aren’t a financial whiz and need some help, you are not unique. Talk to your financial advisor, or your banking representative and see what options might be available to you. If things are serious, most insolvency trustees offer a free preliminary consultation to discuss other options with you. This is the time to be completely honest so you can start to find a path back to financial solvency.
  6. Work together to come up with a plan. There are a variety of solutions available, from debt consolidation loans, a part-time job, selling some items or a consumer proposal or bankruptcy. Make sure you understand all the pros and cons and then work with your partner to make a decision that works best for you and your family.

Once you have a plan that works, it would be a good idea to sit down with a financial planner or a credit counseling agency and work out a family budget. They will look at not only family expenses and debt repayment but can point out areas where you can trim expenses to give you more disposable income so you don’t spiral backward. For example, when was the last time you reviewed your cable or phone plan? The major providers often change the plans, and you might be able to get a better rate with one of the new plans, but the provider won’t tell you unless you ask. How much would you save a month by skipping the morning latte once or twice a week, or bringing your own coffee or lunch? Small changes can add up quickly and help you back on the road to financial health.

Ask the bank or card issuer to lower your credit limits. Unless you are planning a home renovation, do you really need a $25,000 credit limit? Banks don’t like people who pay the full balance every month, they don’t make any money that way. And it’s easy to fall backwards if there is room on the credit card.

No one wants to disappoint the person you have chosen to spend your life with. Hidden debt can have a negative impact both on your health and well-being, and on your family’s security and financial future. Time to come clean.

 

Lisa MacColl is an Ontario-based writer who specializes in B2B and B2C communications, as well as investments, insurance and financial topics. She has also written general interest and parenting articles and her first novella, "Cannoli" is available on Amazon.