If you or your spouse are in financial trouble, debt consolidation may provide some relief. However, if you consolidate joint debt, or you jointly enter into a debt consolidation agreement, this will affect both your credit as well as your spouse's. If the debt is in the name of only one spouse, he can prevent damage to his spouse's credit by handling consolidation efforts on his own.
Credit Reporting
Credit reports belong to individuals, not couples. Unless the couple takes out credit cards or loans together, are joint defendants in a lawsuit, or file bankruptcy together, the information on one person's credit report won't end up on the credit report of her spouse. Likewise, your credit score is based on the information in your reports, not information belonging to your spouse.
Debt Consolidation
Debt consolidation is a way to manage large amounts of high-interest debt from multiple creditors. There are three primary ways of consolidating debt. The first is to take out a debt consolidation loan at a lower interest rate than the existing debt. You'll use the loan to pay off all the debt and then simply pay off the loan over time. The second option is to take out a high limit, low interest credit card and transfer your credit card balances to that card. Again, you'll pay this card off over time at the lower interest rate.
The third debt consolidation option is a debt management plan. Many credit counselors offer this service, though there are some stand-alone debt management firms as well. Your credit counselor or debt management plan representative negotiates lower interest rates and minimum payments with your creditors on your behalf. Each month you make a single payment to the credit counselor, who then disburses the funds to your creditors. If you, take out a debt consolidation loan or credit card or enter into a debt management plan on your own, your spouse's private finances will not be affected unless you live in a community property state.
Community Property States
In a few states, community property rules apply to the debts and assets of married couples. While community property debt laws vary from state to state, a married person who incurs debt shares that debt with her spouse. In such cases, if a wife takes out a debt consolidation loan or low-interest credit card and then defaults on its repayment, her husband could be held responsible for paying that debt. Once the creditors begin to go after the husband, listings from collection agencies and public records like court judgments could end up on his credit report.
Joint Credit Applications
When a couple applies for credit jointly, they are both responsible for repaying the debt even if one spouse is the primary beneficiary of the credit or money received. In addition, lenders will usually request credit reports from both spouses and consider them together when making a decision. If one's spouse is paying off a debt consolidation loan, the lender will take the couple's total indebtedness into consideration.
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