Potential Pitfalls For Paying Off Someone Else’s Debt

I received a really interesting story from a reader named John. He has his financial head in the right place, but some other pieces of his overall life puzzle aren’t quite in alignment. Take it away, John:

I am 29 years old and I have just recently started to jump into real estate investing part time in my hometown. I currently work a regular full time job that pays $43K a year. Just last month I sold my first “project house” and used the profits to be completely debt free (other than my $110K mortgage, 5yr fixed @ 5.9%). I also now have $40K left over sitting in a high interest savings account (5.05%). My plan was to hold onto this 40K and use it to further my real estate investing career. I would use it for downpayments, renovations etc. Without this money, I really do not have any other way of purchasing my second “project house”.

I have been living with my girlfriend for over 2 years now and I am 90% of the way to having the money saved to buy her an engagement ring (should be there by Nov). She just finished school and is coming out holding a little over 20K (interest of ~6% on both) of school debt. Her current full time job is paying her only ~$30K a year.

My question is this:
Should I use 20K of the 40K that I have saved to pay off these student debts?

Pros:
* 20K will take her quite some time to pay down when she is only bringing in $1500 a month and it will be pretty hard on her.
* She (we) will save quite a bit in interest costs by paying this off completely.

Cons:
* This move would limit my RE investing options, as I would only have about 20K to work with.
* I am worried that she won’t learn the value of being debt free as she hasn’t experienced what it is really like to be frugal.

John’s in a situation where there are a lot of questions about his immediate future that he needs to answer. Let’s move through some of these questions one at a time and see how they affect John’s best move.

First, is she going to accept his marriage proposal? This is a very important question because it may likely lead straight into wedding expenses and other such costs associated with this, meaning that he probably would want to have the cash for the wedding liquid rather than tied up in real estate.

Next, would he still want to pay off her loans if she didn’t accept the proposal? Some people might automatically believe the answer here is “no,” but it depends on who John is as a person and also the type of relationship he has with this woman. If the debt repayment is contingent upon the proposal or upon the marriage, then he should wait to pay it off – if it is not, he should pay the debt off immediately.

Also, how valuable is this real estate investing career? For time and money invested, how much did John actually make on the first house? I would figure up an hourly rate including all time invested and all costs and see how it did. If it’s minimum wage or less, the real estate career should be viewed as a hobby and put somewhat on the back burner compared to eliminating debt and paying for the wedding.

I’m also not sure about the comment about “hasn’t experienced what it is really like to be frugal.” I think that’s an issue you need to talk about within the relationship, as there is no advice that can really be given to address that aspect that isn’t pushy or assumes quite a bit about the relationship. Just sit down and talk about frugality and spending – make sure you both understand that the best way to go over the long term is to always spend less than you earn and the bigger the gap, the better.

My perspective is this: if you are sure that you are going to be married in a year or two and you’re not in the middle of a real estate boom, your best bet is to pay off her debt immediately, then pay for the wedding without incurring more debt. If either of those assumptions are in question, then the situation requires a lot more detailed thought.

Of course, with a situation as complex as this, I’m sure my readers will have some additional ideas.

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  1. plonkee says:

    I wonder what she thinks of his plans for a property empire and/or paying off her student loans. If he wants to get married, I believe that that’s the sort of thing he needs to be considering.

  2. Ted says:

    1. You’re not married. I wouldn’t pay it for her until after the nuptials.
    2. Is she living below her means and attacking her own debt? If not, then heck no don’t pay it for her.
    3. Don’t believe the hype on the ring. Just get her a nice ring, not something extravagant.
    4. Sounds like you can do better than 6% with your RE investment, so paying it now really wouldn’t improve your financial situation.

    finally…

    5. She really needs the experience of paying her debt. Its part of becoming a grownup. If you deprive her of this, she will likely never learn and never fully appreciate it. You will have created a princess. That is, if she’s not one already.

  3. Laura says:

    Okay, what I’m getting out of this is that John wants to get married but is still very much in a “my money is mine and your money is yours” mentality. He’s not considering that once they’re engaged and then married, it’s really more of a team effort. His savings and her debt are really part of the same money pool so to me, it doesn’t make any sense for him to be sitting on a $40K nest egg while she’s struggling to pay off $20K in debt with a much lower income. How selfish of John.

    Of course, there are various different ways of merging finances when you get married, and I’m not saying that you necessarily have to pool all your money and have no separate accounts. In fact I think it’s wise to maintain some money in each of your names individually rather than sharing ALL money. But I do think that with regards to debt and savings, those things should be shared. It will benefit you as a couple to pay off the debt sooner rather than later and save you both on interest. That’s just money down the drain if you don’t need to be paying it.

    Why do you want to get married if you’re not prepared to share?

    I detect a bit of annoyance in the statement about your girlfriend not learning the value of being debt-free if she never has to earn it. It comes off sounding to me like you had to work hard to pay off your debts, so she must suffer too for the “learning experience.” I think that’s not a good idea. You can learn to live frugally regardless of whether you have debt or not.

    I do think it would be wise to avoid paying off your girlfriend’s debt until after you have proposed to her and got a yes response, however. I also think it’s wise to save some of the $40K savings to pay for the wedding.

  4. Kim says:

    I would wait until after the wedding to do any major joint financial endeavors. I have had so many friends that have purchased property, bought cars or taken out major debt with a partner before marriage only to to have the relationship crumble. The legal details are a nightmare.

    I wouldn’t touch the investment money. that much working capital is too valuable to your future net worth The student loan interest is tax deductible. If he really is committed to helping her pay her debts, I would recommend both the reader and his girlfriend get part time jobs to pay the debt off earlier.

  5. Danny says:

    The other thing that you have to consider is the interest rates. If the student loans are earning ~6%, then like the previous commenter said, you might be able to get more than 6% somewhere else. If you can invest it in stocks, index funds, or real estate and get more than 6%, it is a no brainer to just make more money and have the debt be paid off monthly.

    I’m sure that you can get better than 6% if you look into it. Try reading the book “Rule #1″ by Phil Town.

    Oh, and finally, since you like real estate, look into the book “Rich Dad Poor Dad” by Robert Kiyosaki.

  6. Though I value being debt free (and I am, except for mortgages), it may be wiser to invest the money in real estate. I would say that it depends on the market he’s in, and how quickly he can acquire properties that fit into his formula.

    In my area, the market is very strong, and getting properties that fit my formula are hard to find. So if you are in that situation, you have time to sit on the money, and could look at paying off debts.

    If you are in a fast moving, distressed market, you are probably better off reinvesting the money, and getting much better returns than the debt is costing you in interest.

    Just some humble suggestions…

  7. Lana says:

    Trent is right – this should be a conversation. What does the girlfriend think?

    Does she expect him to pay her debts off? Would she rather prove her financial independence? What’s her character? These are all really important details in the decision.

    Not to mention, if she’s just coming out of school, her current job may not be the career she’s been working toward, so what she’s making now is sort of irrelevant. What are her goals in her field? The amount of money a person makes in his or her 20s is going to increase exponentially, particularly if they “job hop” their way up the pay-ladder.

    And plenty of college students have vast experience in frugal living. But I would guess from the fact that John brought it up that his girlfriend may need that sort of “real-world” perspective. If she’s always been someone who’s had her needs met by her family, she’ll probably continue to bring those expectations into a marriage, particularly if John pays her debts off without a meaningful conversation about finances.

  8. Patrick says:

    In my opinion he shouldn’t pay her debt off – at least right now.
    1. They are not even engaged yet, and until they are, what is to say she won’t feel grateful and free of commitment… and leave. (I do not know their situation, and I do not pretend to judge, I am only stating a possibility.)
    2. “She hasn’t experienced what it is like to be frugal.” This tells me they are not of the same financial framework, and this is very important in a relationship. If she doesn’t understand how he feels about money, or understand their financial situation, then she may run up $20k in credit card debt thinking he can easily pay it off. Communication is the key.
    3. This money is his working capital. His investment options will be more limited by using half his available money (he also did not state if that was all his money including emergency fund, or only investing money).

    I think the best thing to do is take the student loan slowly, then reassess their situation after they are married. It should be easy to make minimum payments on the loan until then, and in the mean time they can talk about their relationship, plans, and thoughts about finances. Then after they are married, they can work out a way to pay of the loans with “their” money.

  9. Wendy says:

    I agree with Trent in principle, but I think it makes a *lot* more sense to wait until they’re actually married and joining finances (to whatever degree they want) before paying off her loan. If he does pay off her loan beforehand, i would write up a document, signed by both parties, discussing the repercussions of the loan payoff if the relationship/engagement broke up.

  10. Jim says:

    I think he should wait until after they are married before paying her debt. They need to both be on the same page about what they are going to do when it comes to money before getting married. Both the savings and the debt belong to both of them. Once they do get married I think they should pay off all their debt.

    Regarding the tax deduction on a student loan interest as a tax benefit, it’s backwards math. If you’re in the 25% tax bracket, would you pay a dollar in order to get a quarter back? Think about it and you’ll get exactly what I mean. If it sounds like a good idea then send the money my way and I’ll give you back quarters!

  11. Kevin Spring says:

    I think he should wait until he is married to pay off the student loan debt, because once they are married it will be their student loan debt. They should pay it all off with what is left of their savings after the wedding. After they pays these last debts off then they can save like crazy since they don’t have any debt, right?

    I don’t feel his head is in the right place by having her learn to be frugal by experience. That sounds way to paternalistic. He is not her dad but her partner. The debt is not yours and mine but ours.

  12. Brad says:

    If 50% of marriages end in divorce, then even waiting until you’re married is a terrible risk. However, if you love her then it will be worth the risk. Jeese, does that sound like a greeting card?

  13. Susan says:

    I think there are too many unanswered questions here. His girlfriend has $20k of school debt — that doesn’t sound too bad considering the average is much higher. Did someone else help finance her education? Did she work through college? Did she get scholarships?

    I agree that he sounds very paternalistic. Has he even discussed this with his girlfriend? She may have every intention of paying off her loans herself. It sounds like he would do well to start approaching relationship finances as an ongoing conversation, not one-sided decision.

  14. guinness416 says:

    Yeah I agree with Plonkee, Laura and Lana – particularly Laura’s comment that he may be in a “my money is mine and your money is yours” mentality. If the relationship is serious enough to be heading for marriage shortly that’s bizarre to me. Discuss with the woman in your life! As for the “needs to earn her debt-paying stripes” nonsense, please. Thanks to the lack of college fees in my native country I’ve never had a penny of (non-mortgage) debt and yet manage to be a fully functioning adult. With savings even!

  15. Angel says:

    Don’t pay her debt. Putting aside the fact that you’re not married (or engaged), I agree with you with this being a learning experience.

    What I do suggest though, is helping her a bit. From what I understood, she may not be as frugal as you would be, so try and reward frugal behavior by matching her monthly payments, or something that encourages to think twice about buying something that’s not needed, and put that money toward her debt.

    Just my two cents (which, if matched, would really be four)

  16. Johanna says:

    I’m seeing quite a few red flags here regarding the dynamics of this relationship:

    1. When he refers to her income, he qualifies it with the word “only.” I could seem him describing it that way if it were $15k or $20k, but $30k is not at all a bad starting salary for someone just out of school (especially since, given the size of his mortgage, it sounds like they’re living in a fairly inexpensive area), so his word choice here suggests that he doesn’t have a great attitude toward people who earn less than he does.

    2. $20k is a reasonable amount of debt to pay on a $30k salary, so his assessment that this will be “pretty hard for her” makes me wonder how the living expenses are being divided in their household. He describes the mortgage as his alone – is she paying him rent, and if so, how is that amount being calculated? It sounds like maybe they’re dividing up the expenses in a way that’s out of proportion with their respective incomes.

    3. Asking her opinion about paying off the debt is *so* obviously the first thing to do in this situation that it puzzles me that he doesn’t mention her thoughts at all. Either he didn’t think to talk with her about it before asking the advice of a stranger, or else he asked her and didn’t think her opinion was worth mentioning. Either way, that’s not good news.

    My own opinion is that he should not repay the debt out of his investing money, but he should contribute a greater amount to the household expenses so that she could more comfortably afford the payments. If they’re going to keep they’re finances separate when they get married, then they should continue on in that way. If they’ll be combining their money, then she needs to have an equal say about whether he should continue to gamble money in his “real estate investing career” or whether that money should be put toward something else.

  17. bugg says:

    I agree with Laura on this one.

    I don’t see how the magical moment of “when you get married” is the starting line for getting your finances in order. Think of the interest you’ll have wasted during the engagement period!

    I was in a similar situation 5 years ago. I met the best girl in the world. She was (is) lovely, perfect, funny, and (was) $50K in debt. Mostly school loans, and cc bills which were used for the last two semesters. We’re not married yet, but we’re as committed to a lifetime together as any married couple you will meet.

    For three years I helped pay the debts. Month after month we chipped away at it and each month I would feel like we weren’t getting anywhere, we were wasting hundreds on interest alone. And I felt that our cash flow suffered and that our late 20′s were flying by. Life was happening outside the window while we were filling out yet another 12-month 0% credit card application.

    Finally I said screw it, and paid the entire balance off with my savings. I also paid off the car, and my own line of credit which we were using as a lifeline.

    Now, I’m able to put 75% of my income back into savings, which will soon dwarf the meager rate of savings I was managing while also paying off this debt. And we have more cash flow, can actually take a vacation for the first time, and are well on our way to saving up for a house. There’s no feeling like being debt free NOW.

    And to answer the “she didn’t learn the value of being frugal” argument, that’s a red herring. My girl’s more frugal than me. She just happens to also have a college diploma :). The lessons we’ve learned together outweigh me being patronizing and insisting she struggle through this on her own.

    To recap what I learned — Treat your entire financial life as one entity. Think net worth. If you have $40K in savings, and $20K in debt, then you really don’t have $40K in savings do you? Immediately get yourself as close to a zero net worth as you can, and then start building.

  18. Ryan says:

    I paid off a fiance(e)’s loans before, although only $2000, not $20000. 2 weeks before the wedding, she decided she no longer loved me. Don’t do it!

  19. DB says:

    I paid off my fiance’s credit card debt ~30k after we got engaged. The relationship ended shortly thereafter and although we wrote up a loan document, it was difficult to figure out how he would repay. He had a house with some equity in it and was able to get the money from that, but the whole incident was very problematic and I probably shouldn’t have done it in the first place, looking back and knowing how irresponsible he was with money.
    So just be careful! If the relationship breaks up, how are you to get the money back?

  20. Ted says:

    Two don’t become one until after you say “I do.”

    The debt is not his until then. Then and ONLY then does “my money become your money.”

    Anyone who thinks otherwise is probably not married and/or hasn’t been for longer than 5 years.

    Let her struggle some, nobody ever died from having to repay their own debt. It may revel something about her character that would be good to know before you marry the girl.

  21. Tyler says:

    Like the others, I agree that he shouldn’t pay off the debt until they’ve actually been wed. As cold as it sounds, she’s not legally bound to have anything to do with you until she’s married, so you don’t want to just cut her a check for 20k.

    As far as the ‘experience’ of paying debt, that really depends on how her life has been. If she’s down-to-earth and realistic about money, this idea of making her learn the values of living debt-free isn’t worth making payments for the next 10 years or whatever it will be. However, if she’s a big spender and likes to run up her credit cards, he might be on to something.

    Instead of simply paying off the debt, perhaps you could /help/ her pay off the debt. You could send in double payments each month with money from that account. It would get her debt paid off faster, and you’d be earning interest on the balance in your savings account in the meantime. You wouldn’t have to match her 100% exactly- you could be flexible based on your investment returns, cash on hand, other financing, wedding related purchases, etc.

  22. Tammy says:

    Student loan interest can be deducted on income taxes, and you don’t have to itemize to get it. Also, a consolidation may be used to lower the interest rate.

  23. demetri says:

    I think the guy should use some of that money and buy the ring now? Then he can find out if they going to be engaged and utlimately married. Get the ball rolling on all the decision making he has to do!

  24. viola says:

    This is a discussion that should happen between guy & girl, not being asked online. I don’t think paying off someone else’s debt is a question of frugality or interest rates. It’s a question of personal values and views…

    If he pays her debt, will she appreciate it really? She didn’t have to save and work like he did for that money.

    If she hasn’t been frugal before, maybe having to be frugal to pay her own debt would force a change in lifestyle for the better.

    He will have essentially given her at $20,000 engagement ring. Sounds a bit pricey doesn’t it?

  25. Amy says:

    It worries me that you don’t immediately feel comfortable talking this over with her. Given that you’re 29 and she’s just getting out of school, she seems likely to be younger than you by a good bit, and it seems also like you’re not entirely comfortable with her decision-making ability (from the way you talk about wanting her to learn the value of being frugal). Is it just because she’s younger, or do you have other reasons behind this?

    Either way, it’s not a good foundation for a marriage. You really might want to think about some of those issues both before you propose, and before you pay off her debt.

    In the meantime, you could help her with her payments if you want to, but also consider that 20k is not an unreasonable amount of debt to have with a 30k salary. Plus, student loan interest is tax deductible.

  26. Steven says:

    Prior to getting married, if you want to help her pay her monthly obligations, I think that is fine – you aren’t putting yourself into any long-term positions.

    After marriage, then as “two flesh has become one” it is appropriate to look at the entire family finances, and decide what to do with the money.

  27. Amanda says:

    Personally I would not pay off her debt at all. I agree with the other posters who said that this may set up certain expectations in her mind, which is NOT a good basis for a relationship. This is even more pressing if she has gotten used to being taken care of by her family. I don’t want to judge, but if you feel uncomfortable talking about these things with her, I don’t think you’re in the proper place in your relationship to be thinking about getting married.

    Believe me, once you bring money (especially such a large sum) into a relationship, the entire relationship changes dramatically, often for the worst. If John really wants to pay off her debt, he should wait until after the marriage.

    The most pressing advice is that these two should have a LONG financial talkand lay out expectations before they actually get married. It might feel a little uncomfortable right now, but it’s not as uncomfortable as divorce will feel when they find they have completely different financial goals and expectations.

  28. Amanda says:

    Personally I would not pay off her debt at all. I agree with the other posters who said that this may set up certain expectations in her mind, which is NOT a good basis for a relationship. This is even more pressing if she has gotten used to being taken care of by her family. I don’t want to judge, but if you feel uncomfortable talking about these things with her, I don’t think you’re in the proper place in your relationship to be thinking about getting married.

    Believe me, once you bring money (especially such a large sum) into a relationship, the entire relationship changes dramatically, often for the worst. If John really wants to pay off her debt, he should wait until after the marriage.

    The most pressing advice is that these two should have a LONG financial talk and lay out expectations before they actually get married. It might feel a little uncomfortable right now, but it’s not as uncomfortable as divorce will feel when they find they have completely different financial goals and expectations.

  29. Amanda says:

    Sorry for the double post there… must have hit submit twice.

  30. Tim says:

    so what if she has $20k in school loans? The important thing is that she doesn’t have any other debt, at least he did not mention any other debt. If she doesn’t have any other debt, then I don’t see how she is being terribly irresponsible with money. What lesson is there then to learn? Remember, once you are married, the $20k debt becomes a joint debt in the sense that it will affect your joint financial goals. It’s not something you can ignore and keep separate, so paying it off is a burden on both of you.

    Being married means that you should reassess your financial goals which were more than likely based on your single life. What are your expectations from your real estate ventures?

    What’s troubling is that John has a nice $40k cash reserve at this point, but doesn’t seem to have a real financial plan. There doesn’t seem to be anything mentioned about retirement savings, emergency fund savings, savings for other things outside of real estate.

    Another thing to consider is that if John and his fiancee are not living together currently, expenses will decrease once they move in together. $73k joint income is pretty darn good. However, John doesn’t seem to realize this, probably because he hasn’t actually established a budget to see how quickly the student loan could be paid off.

    So, John and fiancee should establish some financial goals to include john’s interest in investing in real estate. They should establish a budget to meet those goals. Pretty basic stuff that is more important than the stuff John is currently focusing on.

  31. Matt says:

    John, I get the feeling that money is too valuable to you and that you are trying to buy your wife through an expensive ring and paying off her debt.

    Is this the route you want to take? Think of the example you’re setting and the type of woman you’ll attract if you choose to do this.

    If a woman would only marry you for your money she is nothing more than a prostitute.

    Also, it is your life and your money first and foremost. Never let a woman, like the commentor Laura above, try to shame you into “sharing” your money or doing something you’re not comfortable with. It is classic woman shaming techniques to call a man selfish or claim that “he’s not a real man” when she wants something to go her way that puts you at a disadvantage.

    Come to a decision on your own first. You know what is best for you and no one, not even your girlfriend, will be able to provide you with the unbiased advice that you need in a situation like this.

    All the best

  32. marylandterps says:

    $20K is a good chunk of change. I would rather save that for an emergency fund or invest it. Student loan debt is good debt, not bad debt.

    My student loan interest rate is 3% fixed for 25 years, plus it is tax deductible. There are other advantages w/student loan debt too. If you die before it is paid off your debt is forgiven (at least for federal loans). If you are unemployed you can qualify for a hardship & not pay till you get a job. You can also base your payment on your salary (good for teachers & social workers) & after 10 years they forgive any remaining balance (again for Fed loans).

    I would think twice before GIVING $20K to a girlfriend. What if she breaks up with you?

  33. Johanna says:

    So I guess you’re not married, then, are you Matt?

  34. benp says:

    Put another vote in for waiting until you are married.

    The interest really doesn’t matter, effectively its about 0.95% on 20K, and thats before tax considerations.

    If you really want to start attacking her debt now, start saving the money you would want to put towards her debt in your own account. After the wedding (and engagement) you can write a check.

    Its okay to let her know you are doing this, and it would be good to have a lot of talks about budgeting and finances. And ignore any temptation to save a little bit of interest by doing something before you are married.

  35. Susan says:

    Laura,

    How dare you say that he is selfish for not paying off her debt before they are married! Maybe you should pay off her debt instead of John? Why not, are you selfish or something? So according to you, a guy should pay off every debt of every girlfriend he ever thinks he may propose to or else he is being selfish? I guess this is the thinking of a true Gold-digger.

  36. Leigh says:

    No way should John pay off his girlfriend’s debt before marriage.

    First of all, it’s her debt and she needs to work it off after their marriage (if they do get married.) Maybe the marriage won’t work out and John will be out of his money and his dreams of home renovation.

    My personal experience: I paid my wife’s mortgage payments and her student loans (~ $12,000 1990 dollars) with money I had saved prior to our marriage. I was being noble and generous. 17 years later, I find out my wife has cheated on me and I’m looking at divorce – with my wife getting approximately $350K walk away money – half of all the money I’ve ever saved and I’ll loose my California home (and lower tax base even though I bought the home prior to marriage.) She hasn’t worked outside the home but 6 months of our marriage, but she still gets half of everything because I didn’t care about keeping it separate during the marriage (because I was planning on “death do you part”.) She also gets half of the money in my IRA account that I saved prior to marriage because I added a couple of thousand dollars to the IRA during the marriage (converting what was my money into community property.)

    You need to be practical these days… it’s my understanding that most marriages end in divorce – so if you have significant assets prior to marriage you need to protect them. It’s your money, not hers. If she has an issue with that – she wants your money not you.

    My recomendation to John: Your girlfriend gets you and all your earnings AFTER your marriage day. Money made before marriage is yours – if you take care not to mix it with community property.

    If you have a pre-marriage IRA – start a new one after your wedding day AND NEVER ADD ANOTHER CENT to your pre-marriage IRA account. That will keep it “separate property”.

    If you own a house, but are still making payments – sell it and buy a new home with your wife after marriage. Take the money from your house, put it into an index fund (and never touch or add another cent to it!) That will keep it separate property. If you don’t, the mortgage payments on the house you owned prior to marriage will convert it to community property (and… you lost your house.) I don’t get my down-payment back out of my house – it’s all 50/50 now.

    It just makes sense to protect yourself. Odds are NOT in your favor, no matter how much you love/trust the other person. Women will tell you they won’t sign a prenup – but if you are careful about keeping your separate property separate – you won’t have to give away your life (which is what money is – life that you spent to obtain money) to a person who doesn’t deserve it.

  37. Kevin says:

    This is not even a close call; even if the two of you were married and totally on the same page financially you shouldn’t pay off that debt now. To eliminate half your liquidity to save $1,200 a year in interest expense(actually less since it’s most likely tax deductible for her)would be crazy. If you are successful in your real estate investments $20K will be small change a few years from now, and if you’re not you could very well need the liquidity down the road. You’re just starting out, don’t tie one hand behind your back.

    A few of the other comments refer to trying to time the real estate market. That’s a tough thing to do; a stable market can go south in a hurry and the best profits are made if you’re buying near the bottom and catch the next upswing. If you’re living in your project house or can rent it to cover your carry the timing is not so important. If you’re not doing either of those things you definitely want some liquidity on hand so you don’t get burned in a fire sale or foreclosure.

  38. Kay says:

    I don’t understand why someone would consider John selfish. He is not married to her and really don’t have any obligations to her debt…at this point.
    However, I think him paying it should entirely depend on what type of person she is. Meaning, if she is not the same “mind set” as him, he may want to be care and not pay for because this could lead to some expectations that he may not get.
    Importantly, I think school loans are good debt and a part of me thinks that she should wing it by her self for a while. My schools loans are alot more than what she is paying and she makes MORE than I do.
    If anything, I would let her wing it out for atleast two years so that she can learn to manage her own debt or atleast until after the marriage.

  39. Naomi Dunford says:

    Thank you, Bugg! I can see what a lot of people are saying here, but “girlfriend” doesn’t mean the same thing as it did in the fifties. I mean, my “boyfriend” and I have been living together for three years, just had a baby, and according to the government, have to file taxes together. Having been married before, this is a lot like being married as far as I’m concerned.

    Now, as for whether John in particular should pay off his girlfriend’s debt, it probaby doesn’t matter IMO. I think he should go with his gut. I also think he, like some of the subjects of previous posts, should stop thinking it’s their job to teach anybody a lesson. Maybe he didn’t mean to have it come off as patronizing as it did, but whether or not she learns lessons is none of his business. That says to me one of three things:

    1.) It didn’t come out like he meant it to.
    2.) He’s being pretty condescending to think her lessons are his business.
    3.) She’s actually irresponsible enough with her money that he really has to be concerned about her lesson-learning.

    If it’s #2 or #3, they should be thinking harder about whether or not they should get married than about whether or not he should pay off her debt.

  40. Meg says:

    She should not pay off that debt no matter what happens!!! If it’s at 6% that tells me that the interest is tax deductible (i.e. that the debt isn’t from private loans). So she’s not even paying 6%, she’s paying more like 4.5%, assuming her tax bracket is 25%. So even if she stays single she shouldn’t rush to pay off those loans–and if she gets married then the couple (as a legal and marital unit) should not rush to pay them off either. And he certainly should not even consider paying them off for her before they’re even married!

    My advice is that he a) propose, then b) figure out what kind of wedding/honeymoon expenses they want to incur, and then c) start pre-marital counseling and/or financial planning sessions. Having a professional mediate these issues will get everything out on the table, keep him from having to be “parental,” and will prevent her from feeling controlled or infantilized.

  41. Lisa says:

    Borrowing from the movieWhen Harry Met Sally,”when you realize you want to spend the rest of your life with somebody, you want the rest of your life to start as soon as possible.”

    So go buy a ring. You sound like marriage is already in the plans and you have been living together for 2 years now. Don’t let some advertising company tell you how many months of salary you should be spending on a ring. Perhaps an Engagement ring is not even necessary. However, as voiced by others, make sure you talk about finances with your future partner as soon as possible.

  42. Tordr says:

    To reinvest or to pay off debt that is up to John to decide for himself, but if he wants to pay off debt then why not pay off some of the mortgage debt he has.
    There must be some questions in his mind if this is the correct way to go as he has sent a mail to Trent, if he repays his own debt at 5.9% interest this is 0.85% better than the savings account. ~6% interest is only about 1% better. So is an improvement of 0.15% worth the additional risk of paying off his girlfriends debt. If we are looking at $20K of debt that comes to 30 dollars per year. Which nothing…
    Earning 1% more on $20K also comes out to 200 dollars per year, which is also not much.
    Having seen some breakups, I would advice against letting love cloud Johns judgements, but if I where in his shoes I would probably be thinking the same things that he is doing. Letting the mathematical side of my brain go for the highest return on the money without appreciating the risks. I would also try to repay her debt as a sign of love.
    My advice: Concentrate only on your own economy until the time comes when you have a baby or are married.

  43. JoeRiv says:

    I don’t see why he should pay off her debt, married or not. She has a job, why not let her be financially responsible?

    If things were the other way around and he had the debt, would people suggest she pay it after they were married? I doubt it.

  44. liz says:

    DO NOT PAY OFF HER LOANS. She should pay them herself. For one, you are not even married, let alone engaged. Even married, do not pay them off. She definetly needs to do it herself. I had to pay my own loans during marriage and it taught me much. I have a credit score of 825. I think you should take this money and invest it in something long term. In about 20 years of marriage you will be glad that you did. And, about the ring. Diamonds are like cars, that depreciate as soon as you take them out of the showroom. And you don’t have to spend thousands of dollars to have a phenomenal wedding.
    Quit worrying, start PRAYING….

  45. Tim says:

    this is just silly. how can anyone rationally think that the debt after marriage remains individual? when married, or even if you are living together, the debt becomes a joint debt in as much as it affects your joint financial goals and decisions.

    ok, so you let her use her pay to pay off the debt, and your pay is going where? This is like saying you pay taxes for social programs rather than for road construction. When money is all together, who the heck can tell which dollar is going to which expense?

    if john and his fiancee are expecting to live the rest of their lives together, then they need to stop thinking like individuals and establish joint goals and plans. it is simply inefficient to do otherwise. next thing people are going to say is that John’s fiancee also needs to pay half the rent, for her own food, for her own insurance, for her own bills, for her own gas, because that will teach her financial responsibility, because this is what people are suggesting.

    if you want to get a diamond, so be it. i’m tired of reading how people think that you shouldn’t get what you want to get. who cares if a new car depreciates, if you can afford it and want it. is it wasting money from other people’s point of view? sure, so are a host of other things that people will spend money on.

    if john has money concerns, then he needs to talk it over with his fiancee. it sounds like john’s fiancee thinks that john’s forays into real estate are more financially irresponsible than her student loans. I also get the sense that John is implying his fiancee isn’t necessarily irresponsible with money, so much as she hasn’t had to worry about where the money was coming from. perhaps her parents were giving her money. don’t know.

  46. Sarah says:

    I find all this emphasis on “teaching” his girlfriend/fiancee downright creepy. If he doesn’t regard her as an equal partner, rather than a child to be instructed (or a “princess” to avoid “making,” gag), then he shouldn’t be marrying her, period.

    Perhaps it’s not what he intends, but John comes off as one of those limited, obsessive types who got lucky in the real estate market and now thinks his views on personal finance make him superior to everyone with a credit card balance.

  47. Nicole says:

    Paying her debt doesn’t have to be an “all or nothing” thing. Maybe instead of continuing to save to buy that engagement ring, he could use the money to fund part of her debt. Let’s say he has saved $5000, that helps an awful lot to knock down a $20K debt. He could then treat it as a gift to her, just like the ring would be. They can get a much cheaper ($100 or so) ring just for show for the wedding, and then save together to get a nice ring once they are married. She doesn’t sound that bad off financially, according to what the letter says, so paying the rest of the debt on her own will be easier for her if he wants help this way. Then perhaps, he can get his wish of showing that he cares about her and wants to work as a team without feeling fully responsible for her debt.

    He needs to talk to her first, without a doubt. She is just as much a part of this equation as he is. But I don’t think he was trying to sound condescending toward her. I am pretty sure if he was planning to leave her out of the equation, he would not have asked Trent for advice; he would have just done his own thing. It seems to me that he is just thinking through options as he sees them right now, rather than just planning her life for her. I would want to go into a major life decision like this with some tips from people who know what to expect and who have some experience with managing their personal finances.

  48. Carol Mickey says:

    Ok, as I see it not even engaged at this time. They are living together. Is she really his girlfriend or is she a roommate? I have known people in the past who think that they have a girlfriend (or boyfriend) who is in actually a roommate and they have sex. Sometimes people use other people. Is she paying rent? Has he even popped the question? If I were John, I would first ask her to marry him and then plan their life together. I would not plan their life or pay her student loans until I had the answer to will you marry me.

    Carol

  49. Liz1 says:

    It sounds like these two people are not communicating. It is very important to have serious discussions about money and financial goals before getting engaged and getting married. The conversation should be two way. For the 20K debt, she made a big long term investment in her future, and now in the future of the family. He should keep that in mind to avoid feeling better than her.

    By the way, a lot of intergender hostility in these comments. Keep in mind guys, she didn’t ask him to pay off the debt. There is no reason to think of her as a gold digger.

  50. Sanjay says:

    My 2 cents worth – Dont pay irrespective of you going to marry her or not – my reasons would be –

    1) Use the cash($40,000) to advance your real estate career, these kind of opportunity would would not be available always. Dont miss out on this opportunity.

    2) As she is just starting out on her career – her pay may be low now – but income would rise every year and soon she would earn lots more and could easily pay her loans off.

    3) Many would consider Student loans as good debts – I assume she would get tax benefits

    4) On a personal level – it would be a more equal relationship if you don’t help her out. She would not have to feel obliged to you.

  51. practical 20's girl says:

    Money does not equal love. Get her the ring, hold onto your assets, and encourage sound financial habits that will enable her to pay off her own debt.

    Free money is never treated the same as money you’ve earned – it can be spent without thinking. By paying off someone else’s debt, you’re not helping them to avoid future debt or “get a clean slate”; you are enabling them and setting a precedent for future bailouts.

    Some of my friends have gone this route and bailed out their wives/significant other’s debt (one with over $50k credit card debt!). Every single one of them thought it was a romantic, noble gesture that would help their partner get back to equal footing.

    What seems like a loving gesture has backfired for ALL of them: the women come to think of the money they earn as “play” money, and rely on their partner to cover basic expenses, and in a short time they’ve racked up even more debt. Long-term goals to get ahead evaporate as the guys get stuck in a cycle of working harder to pay off their partner’s debt. These aren’t “bad” women – they just don’t get it financially, and so they are dragging their partners down rather than working together to achieve a common financial goal.

    Yes, communicate, but more importantly start setting financial goals for yourselves as individuals and as a couple. My now husband and I lived together for over 5 years before we married, and in that time we saved our money, got out of debt, and bought a house.

    We only joined our money after the wedding, and since then we’ve sat down and talked deeply about how we feel about money and where we’re going. Because of this, even though he started out in our relationship being more of a spendthrift than I was, we’ve since gotten on the same page and are making leaps and bounds forward working together for our joint goals.

    Being in a committed relationship means helping your partner become a better person, not enabling them to be less responsible. Give a person a fish, and they’ll eat for a day. Teach them how to fish, and they’ll be set for life.

  52. Kelly says:

    Pay off the student loans but have her make the payments to you at 0%. Anything she pays back can be put into your real estate ventures. She’ll learn the value of getting out of debt and you’ll both save tremendously on the interest. Be willing to make this a gift if she doesn’t end up paying you back so that there won’t be hard feelings (but don’t tell her this ahead of time!).

  53. The problem with paying of someone elses debt is that they never learn the true value of money and are therefore likely to end up in a debt cycle later in life. I agree with Kelly’s comments Pay off the student loans but have her make the payments to you at 0%. This way she learns the value and importance of good budgeting. Hope it all works out

  54. C Ksyniak says:

    If John’s girlfriend does not marry John will she have to pay taxes to the 20K john paid on her loans?

  55. M says:

    @Leigh,

    How does her not working outside the home make her deserving of less? Work inside the home still has value, and I bet you benefited plenty from it, *especially* if you have kids. Plus she essentially trashed any career prospects she had; you can climb pretty high on most ladders in 2 decades. If I was married to a guy who had no respect for that sacrifice or the work I did on a day-to-day basis I would feel pretty alone. It sounds like the cheating was a symptom of your relationship issues, not a cause. And this is coming from someone who has never and will never work inside the home. (If I wanted to spend my life doing poorly-paid grunt work for people who will never appreciate my efforts, I’m sure I could find something with better hours.)

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