Financing a Wedding: Why Your “Something Borrowed” Shouldn’t Be a Loan

2020 may have seen a slew of wedding cancellations and postponements but wedding season is back with a vengeance. If you’ve ever been married or you’re currently planning a wedding, you likely have already figured out that expenses can stack up quite quickly. In fact, according to a recent report from wedding website The Knot, couples in the United States spent an average of $34,000 on their weddings in 2021. If you, like most Americans, don’t have a spare $34,000 lying around, you may have considered taking out a loan to finance your big day.  Here, Hallie Kraus answers the question, is it worth it?

To Loan or Not to Loan

In order to answer this question, it’s first helpful to take a step back and define “good debt” versus “bad debt.” Taking out a loan is advantageous when it is used to build wealth or increase your income over time. The most common types of “good debt” are mortgages, business loans, and (in most cases) student loans, because the financial benefits of taking out these loans are likely to outweigh the amount you ultimately pay in interest.

However, the opposite is true when you take out loans to purchase depreciating assets or solely for the purpose of consumption. Debts like car loans and credit cards are generally considered to be “bad debt” because your purchase isn’t expected to increase in value or generate income, thereby leaving you in a worse financial position in the long run. This is especially true given where interest rates are right now. Interest rates have already increased by several percentage points this year, and the Fed expects to continue increasing them until inflation is under control.

With that context in mind and although your wedding will certainly be one of the most important days of your life, it is not worth going into debt over. If you’re unable to pay for your big day using a combination of your own savings and/or help from family members, consider planning a small wedding that is within your means right now, setting a savings goal for yourselves, and planning a bigger celebration when it can be covered with cash.

While this recommendation is purely based on what makes sense from a financial perspective, it’s important to note that some debt may bring with it some insidious psychological and emotional consequences. Taking out a wedding loan may set a problematic precedent for a couple’s finances and normalize “bad debt” at a time when they’re in the process of envisioning how they want to live their lives and what they want their future to look like.

If you’re feeling tempted to take on a wedding loan, schedule a time with your partner to talk through the implications. If you’re not sure where to start, try asking yourselves: How would we feel about starting our marriage in debt? If we do take out a wedding loan, how would this payment fit into our budget? How do we prioritize our wedding in relation to our other goals? Would taking on this loan prevent us from accomplishing those goals? And importantly, how will we determine when it makes sense to take on debt in the future? Research shows that couples who talk about money regularly are happier than those who don’t, so now is a great time to get comfortable with these conversations.

Get Creative with the Ways You Save

While it’s not advisable to take out a wedding loan, we do suggest looking to your surrounding community for support that would help lower your costs. Is your aunt willing to lend her beautiful backyard as a venue for your ceremony? Can your neighbor the florist donate the flowers for your bridal party if you agree to housesit the next time she goes out of town? Is your handy best man able to build your wedding arch? One of the most touching and sometimes unexpected results of a wedding is the strong sense of unity your guests feel after having witnessed your big day, and you’d be surprised how many of your loved ones will be eager and honored to contribute in tangible ways that also leave you better off financially.

At The Humphreys Group, we understand the significance of your wedding and we wish you a beautiful celebration that you’ll look back on with fondness for the rest of your life. However, we also wish you a lifetime of financial stability. Don’t sacrifice one for the other. Reach out to us today to continue the conversation.

 

 

Diane Bourdo, CFP®
Diane Bourdo, CFP®

Diane Bourdo is the President of The Humphreys Group. Diane has dedicated her life’s work to helping women make smart financial decisions. For nearly 30 years, she has developed investment management and financial planning strategies that allow her clients to create lives that reflect their values. Diane was named an InvestmentNews 2020 Women to Watch and has been recognized in Forbes, SF Chronicle, NY Times and more for her work and writing.

Diane Bourdo, CFP®
Diane Bourdo, CFP®

Diane Bourdo is the President of The Humphreys Group. Diane has dedicated her life’s work to helping women make smart financial decisions. For nearly 30 years, she has developed investment management and financial planning strategies that allow her clients to create lives that reflect their values. Diane was named an InvestmentNews 2020 Women to Watch and has been recognized in Forbes, SF Chronicle, NY Times and more for her work and writing.

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