Does your debt management plan affect your partner’s credit report?

It is easy to fall into debt, thanks to convenient online lending methods. Consequences for mounting debt are bad, and many such as your credit score will be ruined, late payment fees and interest penalties will be added onto your account, and you might be taken to the court. Fortunately, a debt management plan can save your skin by helping you with repaying your overdue debts without taking out a new loan.

Debt management plans are tailored to your financial situation. A credit counselling agency will negotiate with your lenders before proposing a payment plan to you. You will make one monthly payment to the agency that it puts at the settlement of your debt.

A debt management plan offers you a structured payment plan at potentially lower interest rates and fees. Your income and expenses will be taken into account. Some credit counselling agencies may include your partner’s income as well, which can be a red flag for your partner. Here are some of the questions that people often ask about a debt management plan.

Will your partner’s income always be included?

Your lenders will peruse your income and expenses to see how much you are left with to be used for the debt settlement. You have two options:

• Using a joint account

If you are living together for a long time or married and have kids, using a joint budget makes more sense to pay off your debts. Both your income and expenses will be checked to know how much you can quickly pay every month.

It will let you settle your accounts faster. As you are a family, your partner will not mind contributing to your debt payments. It is vital to settle your accounts faster if you want to take joint personal loans or joint mortgages down the line. The chances of approval are high when both of you are absolutely debt-free.

• Split your expenses

Joint expenses like rent, utilities, maintenance, and groceries can be divided among both of you. Split works best when there is no huge gap between your incomes. Otherwise, divide your expenses according to your income. Your credit counselling agency will consider your personal expenses like clothes and your portion of joint expenses.

Your partner’s income will not be added to your debt management plan. You should not add your partner’s income to your debt payment plan if you owe them before you even met.

Confirm your debt management company that they do not have a mandatory policy to include your partner’s income. If so, you can talk to another firm.

Will your partner have difficulty paying off your debts?

Dividing a joint expenditure plan will leave your partner with some money after paying their share of joint expenses. It will not financially affect your partner if that money is enough for them to manage their personal expenses and settle their debts.

But this idea is not great at all when your partner is left with very little money after paying their share of joint expenses and has a lot of debt to pay off. Both you and your partner will need a debt management plan. Your monthly instalment will be determined based on your individual income and expenses.

Suppose you suspect that you will not be able to stick to payments. It is not a good idea. You should consider other options like insolvency or downsizing rather than a debt management plan.

How will a debt management plan affect your partner’s credit rating?

Your partner’s credit rating will be damaged if you choose a debt management plan using a joint household budget. However, your partner’s credit rating is not safe despite using the “splitting expenses” method if:

• You have a joint bank account
• You have a joint mortgage
• Or you have been a guarantor on a loan

Get a copy of your credit report from all three credit reference agencies and check if there is any account associated with your partner in any way.

Will your decision to move in with your partner change your debt management plan?

You can tell your credit reference agency about your decision and use the aforementioned ways to pay off more, but you should ponder over it.

First off, you cannot decide on your own whether or not to include your partner’s income. Even if you are both marrying, your partner’s consent is a must. Only if you think you are both happy and have been smoothly paying off your expenses should this idea be considered. Work upon a debt relief order and bankruptcy if this plan does not seem to work in your favour at all.

What should your partner know if you choose the plan?

You are not legally bound to tell anything, but there are a few practical reasons why you should tell your partner about your plan.

• Your partner’s credit score will be affected if their income is used to pay off your debts.
• The settlement of a guarantor loan will also affect their credit score even though their income has not been added to your payment plan.
• Your relationship can be affected when your partner, by accident, receives a phone call or letter from a creditor.
• You may not hide this fact from your partner for a long time because you are not allowed to take out a new loan either individually or jointly.

If you are serious about your relationship, make sure you disclose everything about your debt management plan.

The bottom line

A debt management plan can help you settle your unpaid accounts, but it may take a long time to be free from your obligations. Further, you will not be allowed to take out a new loan including emergency loans, such as loans with bad credit and no guarantor. Your partner’s credit score can be ruined if their income is being used for the settlement or your plan includes the debt guaranteed by your partner. Not all types of debts are included, so despite the plan you may be left with some debts to manage all alone.