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Until Debt Do Us Part?


Money can’t buy love, but it can certainly make the warm and fuzzy feeling between partners go away if the studies are to be believed. A a recent American study found a large population of young adults would abandon a romantic relationship if the potential partner was in debt.

It’s not a phenomenon that can be dismissed as one of those American things. Closer to home, similar studies showed that Canadians would be just as likely to give up because of a partner’s debt.

While the COVID-19 epidemic has had a profound impact on the household income of millions of Canadians, many struggled with unmanageable levels of debt before the pandemic. The most recent Statistics Canada Report on household debt shows that the average household debt-to-income ratio in Canada is over 170%, which means the average Canadian owes $ 1.70 for every $ 1 they earn. It is one of the highest consumer debt-to-income ratios in the world.

With the coronavirus pandemic exacerbating the financial vulnerabilities of Canadians, debt, particularly bad credit, has taken center stage as a determinant of the sustainability of a romantic relationship.

Let’s talk about the debt, baby

Couples often avoid talking about money early in their relationship for fear of causing embarrassment and not wanting to come across as unromantic. Yet money is a fundamental aspect of our lives, says Tina Tehranchian, ssenior wealth advisor at Assante Capital Management Ltd.

“Avoiding the conversation about money early in a relationship can lead to nasty surprises and major arguments down the road,” she says. “It is very important to know your partner’s attitude towards money and to make sure that you can at least find a common ground that is acceptable to both parties. “

Communication and transparency are essential when building any financial relationship, romantic or otherwise, says Teresa Valenti, senior wealth advisor at Meridian Credit Union. “It is important that both parties understand where the debt was created and accumulated, which will also help indicate the likelihood that this is a pattern and how the debt can be overcome.”

Depends on debt

Although debt is a four letter word, it is not an unforgivable anathema. Debt can take many forms. Job loss, student debt or a spendthrift lifestyle are some of the most common causes of debt, especially among young couples. “Knowing the cause of the debt allows each partner to assess the financial situation the couple will face collectively,” says Valenti.

From there, they’ll either find solutions that work for both, or decide their financial differences are too large and go their separate ways.

Acceptability is a strictly personal choice. “Acceptable debt can be a mortgage, student loan, or small business loan for which there is a consistent payment history that provides a rigorous approach to managing future debt,” notes Valenti.

On the other hand, high credit card balances, car loan debt greater than the value of the vehicle, or even a bad credit rating are red flags. “If a partner has more debt than their income can manage, this is worrying and can be a deal breaker,” she adds.

Experts tend to agree that there is no absolute number that would make partners withdraw from a relationship. “It all depends on each person’s tolerance for risk and debt and the trust the partners have in each other and their ability to repay the debt,” Tehranchian said.

Good Debt Against Bad Debt

Make no mistake about it, there is good debt and there is bad debt, no matter how small. Any stubborn debt resulting from recurring borrowing to spend should sound the alarm bells. “Borrowing to go on vacation or to buy expensive clothes or furniture, or cars, is considered bad debt,” says Tehranchian.

Interest paid on these debts is not tax deductible. Worse, the borrower may “have to resort to expensive borrowing methods such as credit cards or high-interest car loans that are more difficult to repay,” she warns.

Any debt that could hamper financial stability plans should not be ignored, says Valenti. “A partner’s bad credit rating or high debt levels can make it more difficult to approve a mortgage, plan for future children, or make it harder for the partner to have a lifestyle. better financial situation, ”she notes.

Certain types of borrowing may be considered reasonable by some people. In long-term wealth building strategies, a mortgage on real estate or an investment loan, for example, is generally considered good debt. “If the mortgage is for investment property or if you are borrowing to invest, the interest charges are tax deductible, which makes this type of loan more attractive,” explains Tehranchian.

If the borrower has stable cash flow and can repay the loan during good and bad economic cycles and despite increases in interest rates, then these types of loans are acceptable and could help build equity over the long term. term, she said.

Student loans are also considered a prudent investment. “If their payments are affordable given the borrower’s expected future income, they are considered good debt,” Tehranchian notes.

Any debt that increases your net worth or produces future value should be considered a good kind of debt, says Valenti, but adds that “every partner should be very honest and upfront about their financial situation from the start of the relationship.” .

The pandemic can change the picture

The COVID-19 pandemic has underscored the fact that our lives and livelihoods could change rapidly for reasons beyond our control. It also made it clear that “if you are fully in debt and don’t have a cash reserve for emergencies, even though all of your debts are good debts, it can be a recipe for trouble in hard times,” explains Tehranchian.

For many couples, the magnitude of the financial impact of the pandemic may not yet be known. However, some of the most obvious financial fallout from the global health crisis is evidenced by the build-up of debt due to mortgage and credit card deferrals, additional borrowing to pay for expenses, and the purchase of homes. often $ 100,000 above the asking price. “Deferrals lead to an increase in debt balances, as interest charges have accrued for most debts during the deferral period,” says Valenti, noting that “any debt that does not have a repayment plan should raise a red flag “.