Can Married Couples Consolidate Their Debts Separately?

The following is presented for informational purposes only.

Once you're married, one of the first questions you'll need to tackle is: should we combine our finances? It's an important conversation with no one right answer. Ultimately, you'll need to weigh your goals and preferences and pick a path that works for both parties.

When it comes to credit card debt and other expenses, you may decide to maintain separate accounts. But what happens when you decide to pursue a debt repayment strategy like a debt consolidation loan or debt management plan? Does your spouse have to be involved? And will their credit be hurt by your decision?

Here's what you need to know about debt consolidation, marriage, and the potential impact on your spouse.

Consolidating debts in your name alone

In most cases, if a debt is solely in your name, you can take out a debt consolidation loan in your name (only) to repay the debt with no issue. As long as your spouse isn't a joint account holder, the account has no impact on their personal credit history. While consolidating multiple debts into a single loan may hurt your credit (assuming the old accounts close, causing the average age of your accounts to drop), it shouldn't impact your spouse's credit.

There is one major caveat: community property states. Currently, there are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

In a community property state, married couples share assets and liabilities equally, no matter whose name is on the account. Depending on the state, there may be some exceptions for debts that explicitly aren't taken on for the benefit of both spouses, but by and large the responsibility is shared. 

Fortunately, while living in a community property state may change your legal responsibility, it doesn't have any impact on how your credit is reported. If an account is only in your name, then it will only be reported on your credit report, and won't impact your spouse no matter what debt repayment option you pursue.

Consolidating debts in both your names

What if your spouse is a joint account holder? Then things get much trickier.

First, any changes to an account (including closing the account as part of a consolidation) typically require authorization from both account holders. This means you'll need permission from your spouse before moving forward with a consolidation.

Second, as an account holder, your spouse's credit history will be impacted by whatever happens to the account, from missed payments to maxed out credit limits to closing the account altogether. As a shared account, you'll both take a credit hit for whatever happens.

It is possible, if desired, to potentially remove one spouse from an account before pursuing a debt consolidation. This can be complicated, though. You'll need to contact your creditor to ask for directions to remove one of the account holders, and then the remaining account holder will need to undergo a financial assessment to ensure that they're capable of handling the account on their own. 

But even if you successfully remove one spouse from an account, there's still a good chance that being removed from the account alone will have an adverse impact on their credit score.

When considering your debt repayment options, try to factor in all of your goals and priorities. A short-term credit hit may be preferrable if it helps you get out of debt. If you need more help understanding your options, MMI offers free financial counseling 24/7, online and over the phone. Our experts can help you review your options and pick the solution that best suits your needs.