Higher rates on couples with merged finances | Featured story


Financial matters can be complicated to manage when you are in a relationship. If you don’t come together to make decisions about how to manage your joint affairs, conflicts can arise. With inflation and rising interest rates, it’s even more important to make quick and positive choices.

And if you’re like many consumers who borrowed to make up the shortfall, you also have to deal with higher and more costly debt. In July 2022, the Federal Reserve raised interest rates an additional three-quarters of a percentage point, causing APRs to rise further.

Now is the time to assess your finances with your partner. When you do, you can take action to weather this storm together. You can even get closer in the process. How rising interest rates affect household budgets

In June 2022, inflation hit a 20-year high of 9.1%. The impact is felt on almost all goods and services, with some common expenses exceeding the average. The US Department of Labor’s July 2022 consumer price index found that the cost of meat, poultry, fish and eggs rose 11.7%, fruits and vegetables rose 8 .1% and household cleaning products increased by 11.3%. Utility (piped) gas service jumped 38.4%.

The pressure that these rising costs can create is intense. Incomes have not kept pace with inflation, so there is less money to spend. If you used to have more than enough to cover your household expenses, you might feel an uncomfortable pinch. But if you were just coping, the pain can be deep.

“Spending has gone up and most people haven’t adjusted their budget accordingly,” says Shmuel Shayowitz, president and chief loan officer at Approved Lending, located in River Edge, New Jersey. “There is a lot more stress. Couples should openly discuss their bills and expenses. I have found that households are usually on autopilot, people get into a routine, but they have to change with new circumstances. This is serious.” Communicate about money and adjust your actions

Danny Kofke, content creator for an Atlanta financial wellness company, says he and his wife have been communicating about their family budget, so they can make any necessary adjustments.

“Our eldest daughter is starting college this year and we have to pay tuition and other fees,” Kofke explains. “Now my wife and I are discussing grocery prices. She comes back from the grocery store after spending $250, and I ask her, “What did we buy?!” The bill is much higher than before. »

Kofke and his wife, who merged their finances with all joint bank and credit accounts during their 22 years of marriage, took action.

“We can’t control the economy, but we can control our spending,” says Kofke. To make the numbers work, he and his wife began cutting unnecessary items from their budget, including canceling satellite TV. It all adds up, he says, explaining that if they don’t need it, they get rid of it. How to Manage Merged Finances

Making changes when you’re single can be easier than when you have a partner because you don’t need a membership. If you want to cut spending or forgo a vacation because inflation and interest rates are driving up those costs, and you’re willing to wait, you can.

However, your partner may not have the same level of commitment. To avoid conflict while staying on the same page, Shayowitz recommends setting up a formal 90-day or quarterly meeting where you simply discuss your goals and aspirations.

“Make it a macro review,” says Shayowitz. “Talk about all the things you want or need to do in your life. It doesn’t have to be a bill-by-bill discussion. When you focus on your goals, you will naturally begin to focus on what’s holding you back from achieving them.

You can make the budgeting process effective by identifying what each of you is passionate about. “There are some specific things that you might not want to compromise on, and that’s fine,” Shayowitz says. “Now you have to save or release that money. Discuss how you are going to do it. If necessary, separate your finances

In times of financial hardship, merged accounts can be difficult for couples. Each person can see the ebb and flow of money, which can lead to micro-management. After that, arguments can ensue, with each person pointing fingers at the other for overspending.

For this reason, Shayowitz says creating separate bank accounts may be the best solution.

“Couples may find them very helpful,” he says. “You can have a joint operating account where the majority of your income goes and then an overflow account for each of you in your own name where there will be no questions or judgments.”

With this system, you can pay household bills from operating account funds and then use the individual accounts for your special interests. How Rising Rates Affect Credit Cards and Couples

Making budget changes can also help you avoid getting into debt. Many are looking into credit cards more than they have in the past. The 2022 report from the Center for Microeconomic Data at the Federal Reserve Bank of New York shows a 13% year-over-year increase in credit card balances, the largest increase in two decades.

And if your credit cards have varying APRs, expect hikes. As of July 20, 2022, the average variable rate credit card interest rate was 17.25%, compared to 16.4% three months earlier. Therefore, if you have deferred debt, financing costs will also be higher.

The Fed rate hike also affects new credit card accounts, so if you and your partner are looking for a credit product, be prepared. The better your credit scores, the more likely you are to qualify for lower rate cards.

Even if you’re half a couple, you don’t have to merge your credit cards. You may want an individual account, which is in the name of one person. Most credit issuers allow you to add authorized users, so your partner can use the account. Kofke and his wife have only one personal credit card between them, with one being the authorized user. With this arrangement, they both have access to the line of credit and they can manage it together.

Or you can opt for a joint account. This can make sense when you want the account to be a permanent part of your individual credit reports or if you cannot qualify for the account on your own.

Whichever situation you choose, think about the right card for both of you, and know that your actions with your account — whether separate or shared — can impact the other person. If you accumulate a balance that results in increased payments, you will have less money available for your merged bills. And if your credit scores drop because you start to miss payments, it will affect your combined goals, like buying a house or a car. Merged finance and debt management in times of rising rates

If you haven’t discussed managing credit cards, don’t delay. One of you may be more inclined to get out of inflation problems and go into expensive debt.

“The instant gratification of spending money will be very short-lived, but the payback will have ramifications for years,” Shayowitz says. “Make sure your partner is aware that borrowing for something today will impact your future. Help them realize they can go without anything they want, so they can avoid going into debt, can increase the pressure.

Remember, this is about refocusing the conversation on goals. Will putting the extra charges on credit cards help you achieve them or prevent them? Focus on this question.

If you’re already in debt and rates are rising, there’s no time to waste on establishing a repayment plan. Reducing expenses is good if there is room in your budget, but you may want to add more money to the fund pool by getting a side hustle or a part-time job. Then, when you have the money, apply it to your credit card balance.

“I like the debt snowball method,” says Kofke, referring to the strategy where you pay off your smallest debt first, then apply the payments you were using to the next smallest debt. “You build momentum because you see results quickly. When you do it together, it’s empowering. You accomplish a goal, which strengthens your bond. You can party together!

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