Every month, The Capitalist Next Door will answer questions submitted by our members. If you would like to submit a question to our resident Capitalist, please click here and put “The Capitalist Next Door” in the subject line. —–

1. I just got married. I have three credit cards (two with balances that I am paying down). My new husband has three credit cards, all with outstanding balances – including one that is quite big. Now that we are a couple, does it make sense to consolidate our cards? – Nina, Apalachicola, Fla.
   
   Since you don’t say that either of you are having trouble making payments on these outstanding balances, you are probably better off sticking with your own cards and paying off the debt on each of them. Then come up with a healthy financial plan for your future that does not include massive debt. You need to have a detailed conversation about how you want to handle your finances as a couple, keeping a few things in mind.

   First, know exactly how much debt each of you bring into the marriage, and come up with a plan to pay it off. Conventional wisdom says to pay off the balances on credit cards with the highest interest first. But if one card carries a small amount that you can pay off quickly, go ahead and wipe that slate clean first. You want to avoid month after month of multiple payments.

   Next, know your individual credit scores. If one of you has a bad credit score, it won’t ruin the good credit score of the other. However, if you apply for credit as a couple — a mortgage loan, for example — that bad credit score will be a factor for any lender.

   Finally, once you have paid off your debts, avoid falling back into overspending habits. Use credit wisely. Some experts, like Dave Ramsey and the managing editor for Kiplinger.com, counsel a complete break from credit cards because they increase spending. Consider using only a debit card, which deducts payment immediately from your bank account, or a charge card, which requires full payment each month.

2. I started my own small business nearly two years ago and have had some success. Now I want to bring it up a notch. My parents have generously offered to lend me the money. Is that a good idea, or should I just see if a bank will give me a loan? – Bill, Keene, N.H.

   A loan from your parents will never be as simple as a loan from a relative stranger. Since you already have a proven track record in your business, why not get a bank loan and keep everything just business?

   Borrowing money from family has so many pitfalls, even with the best of relationships. Once somebody has their money tied in with your business, they could feel as if they have the right to question your decisions. And they’ll ask you about those decisions during what should be a relaxing family dinner. When you add the parent/child relationship into that mix, the possibilities for hurt feelings and even anger on both sides intensifies.

   So try the bank first. If that doesn’t work, and you do decide to accept your parents’ generous offer, approach it as a business owner, not as a son.

   • Work out a repayment plan from the start.
   • Do not miss a payment. Agree upon collateral for the loan, so that if things go sour and you cannot send payment, you can compensate them somehow.
   • Put everything in writing.
   • Insist on treating the loan as the business transaction that it is, and have a frank discussion about your parents’ role as a lender not crossing into being a partner. That may not eliminate uncomfortable discussions about new ideas for making your business better, but it gives you the ability to cut off the discussion with a “remember what we talked about” warning.