“I don’t want to pay down their debt”: With vastly different net worths, is it worth combining finances with person 2 and how to navigate this?

Hey Money Minder, got a situation here. We’ve got a couple playing house in two condos and now they want to shack up together. Person 1 is sitting on a cool $1.2M in net worth (retirement, savings, residence), but also has $332K in debts (mortgage), bringing their net worth down to $846K (in their mid 40s).

Person 2, on the other hand, has a net worth of $465K (not much in retirement, no savings, just their residence), but crushing debts of $320K (mortgage, credit card, home repairs, IRS, student loans, and a 401K loan), leaving them with about $118K (in their early 50s). Should person 2 ditch the condo to wipe out the debt, even if the mortgage interest rate is low? Or should they start fresh?

Person 1 is all about not helping person 2 with their debt but is open to paying more for their share of the living situation (probably renting and then buying once person 2 gets their act together and saves up). Person 1 is even thinking about renting out their place.

Give us the lowdown on what to do and please keep it snark-free. Much appreciated!

-Looking for Advice

Response from THE MONEY MINDER:

Hello There,

Congratulations on considering taking the next step in your relationship journey and planning to combine lives. It’s great that you are seeking advice on how to navigate the financial aspects of this transition. Based on the detailed financial situation you’ve shared, it seems like person 2 is carrying a considerable amount of debt compared to their net worth. Selling the condo to clear out debt is definitely a practical approach worth considering, especially if the debt is spread across multiple sources like credit cards, home repairs, IRS, student loans, and a 401K loan.

While person 1 may not want to directly pay down person 2’s debt, it’s commendable that they are willing to contribute more towards the shared housing expenses. Renting out one of the condos could be a good source of additional income while person 2 works on stabilizing their financial situation and building up savings.

In terms of whether person 2 should sell the condo to clear out debt, it may be beneficial to calculate the long-term financial impact. Consider the interest rates on the debts, the potential savings from selling the condo, and the overall financial goals of both individuals. Starting fresh without the burden of debt can provide a clean slate for person 2 to focus on saving and building a more secure financial future.

Ultimately, the decision should be based on a thorough analysis of the pros and cons, taking into consideration short-term and long-term financial implications. It’s important to have open and honest communication about financial goals and expectations moving forward. As you navigate this important financial decision, we wish you all the best from THE MONEY MINDER.