How to untangle joint finances
Few people realise that a partner or housemate's bad budgeting habits can affect their own applications for loans or credit cards - until they get rejected.
The Consumer Credit Counselling Service has predicted a rise in personal insolvencies over the next year, with six million households at risk.
But a spiral of debt doesn’t always affect just one person. Even if you think your finances are stable now, you could be dragged down by a crisis affecting someone you live with.
Take action to detangle your finances and protect a good credit rating - which gives you access to better rates on deals.
Jointly liable for debt
Two-fifths of adults are unaware that sharing accounts like a mortgage or bank account creates a ‘financial association’ on their credit report, according to Callcredit, the credit reference agency. So when one partner fails to repay a debt it can impact the other person in the relationship.
If you have a joint loan with an ex, you’re responsible for the full amount if he or she fails to pay. Even worse, if you personally took out a loan for the both of you, but it’s in your name, you’re the one the lender will chase for the debt, regardless of whether your partner was the one spending and making repayments.
Suggestion: Open individual bank accounts. If you have a joint loan, your partner could try refinancing to another loan but as a single applicant. You can still help with repayments, but you wouldn’t be responsible for the debt.
If you and your partner have split up, close any joint accounts. Any debt will have to be repaid and if your partner is refusing to help you might have to organise a debt repayment plan with the lender. More help can be found from debt charities such as the CCCS and the National Debtline.
Removing someone from a mortgage can be tricky but it’s possible and if you’re renting, notify the landlord and make sure the name of the person moving out is removed from the tenancy agreement.
Company credit cards
An employee from Peacocks got a shock when she received a £56,000 company credit card bill after the chain went into administration. She was responsible for booking travel and accommodation for colleagues and was named as a cardholder, meaning she was then asked to repay.
On the flip side, small business owners handing out extra cards to employees need to keep a beady eye on colleagues’ spending, as the primary cardholder is often likely to be solely responsible for all repayments.
Sole traders using a card for business purposes should also note that they are personally liable for the borrowing, so even your house could be at risk if there are big debts to pay back.
Suggestion: Familiarise yourself with company credit card rules, look out for what expenses will and won’t be accepted by your employer and be aware of any joint liability clause.
Small business owners should make it clear what the extra cards can be used for and cap the spending limit so you’re not hit with an unexpected bill.
When your housemate won’t pay the bills
House-shares can turn into nightmares when there’s a flatmate refusing to pay their share of the bills. Whether it’s for energy, water, or council tax, unpaid bills and arrears can affect everyone in the household who is named on the accounts.
Suggestion: Negotiate with the landlord whether bills can be incorporated into the monthly rent, so you only have to pay your share and can leave the landlord to hassle any late-payers. If not, encourage your housemates to sign up to direct debits, so the money is taken from each of your accounts automatically.
What else should you think about?
If you have a new partner who previously had debt problems, try to keep your finances completely separate, so no joint names on utility bills, loans or credit cards.
Even if that person is back to ‘neutral’, it can take up to six years for past mistakes to be completely wiped from their record.
Protect your family
If you or your other half fall ill or die, the other person is left with mortgage payments and bills and could soon fall into arrears.
It’s no-one’s fault, but it can mean real hardship. To protect your finances compare life insurance cover and consider buying critical illness cover to insure you for major illnesses that would render you unable to work.
Income protection is also worth a look, which would cover for accidents and minor illnesses not covered by critical illness insurance.
Checking your credit score
Finally, keep an eye on your credit report to check it’s up to date and that you have successfully disassociated yourself from someone else’s finances. If something is wrong you can add a notice of correction, giving potential future lenders some context for any blips on your report.
You can get a free trial with Experian through lovemoney.com.
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