When Lori Cheek found herself moving in with a roommate at age 42, she thought she’d have a place to stay during a bad breakup. What she didn’t expect was the financial heartbreak.
“It was the worst living experience of my life,” says Cheek, an entrepreneur and dating app founder in New York City.
For example, Cheek paid her share of the utility bills each month, but the roommate would never show the receipts to prove that she was charging a fair amount. Their personalities clashed, and after a few months, the roommate, who Cheek met online, tried to raise Cheek’s monthly rent. After Cheek protested, she became worried that her enraged roommate would destroy or steal her belongings.
Cheek managed to get out of the lease and find another place to stay without having her belongings or finances destroyed. “I didn’t really lose anything except my sanity,” she says.
But for many roommates, money problems can cost them a lot more than their patience and well-being.
Roommates “are entering into a shared financial agreement, and a major one, and it can have a long-term effect on your financial future,” says Rod Griffin, director of public education for Experian, a consumer data company and credit-reporting agency. A roommate who doesn’t pay rent and utility bills on time — or at all — can wreck your budget, stick you with late fees and destroy your credit score in the process.
So how does an intrepid lone renter find a roommate who’s on steady financial footing? There are a few steps you can take to ensure that your bunkmate doesn’t bankrupt you.
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Choose carefully. Trying to find a roommate? “You need to think about who is on the same financial page you are,” says Emily Heffter, spokesperson for Zillow, an online real estate marketplace.
Ask good questions about how you’ll approach splitting shared costs, purchasing furniture and handling the utility bills. Are you willing to split utility costs with a roommate who, for example, likes to crank up the heat in the winter and routinely take hourlong showers? It’s important to understand that money means different things to different people, says Matt Hutchinson, director at SpareRoom, a roommate-match website.
Perhaps you’ll get the sense that your roommate expects to be surrounded by the latest smart-home systems and trendiest furniture while you’re hoping to pinch pennies while you pay down student loans. That might be a recipe for disaster. Or maybe you suspect that your potential future roommate is a little frazzled and bad at responding promptly to emails and deadlines.
Keep in mind, Hutchinson says, that friends don’t always make the best roommates. Talking about money with friends may be awkward, and you truly need to select someone based on more than just social compatability.
[See: 15 Financial Steps to Take Your First Year After Graduation.]
Talk it out. Try to have regular financial conversations, experts say. “Communicate early and communicate well,” Hutchinson says. “Every issue is always worse when you get to the state of communicating by Post-it note on the fridge.”
Time these chats — during which you can discuss shared bills or potential purchases — to happen separately from other roommate conversations or socializing. You don’t want it to bleed into your relationship, Hutchinson says, but you periodically want to check in to make sure that you’re on the same financial footing.
Sign separately. You may be able to separate your financial health from your roommate’s money issues while still sharing a space.
For example, Heffter says, your landlord may agree to put each roommate on a separate lease, ensuring that you’re mostly responsible for your own rent check and commitment to stick to the length of the lease.
Make sure that you understand the terms of your lease. Can you sublet the room if you or your roommate unexpectedly need to move out early? What are the financial penalties for failing to uphold the terms of the rental agreement?
Think about your credit. Late rent payments or utility payments may count against your credit score, so it’s important to know whether your payment history is being reported to the credit bureaus. “The fact that unpaid utility bills and unpaid rent can negativey impact your credit history is something that most people don’t think about,” Griffin says.
If your name is on a utility bill, then unpaid statements will count across your credit health, no matter whether your roommates pay their share on time. Take that responsibility seriously. Failing to pay utility bills could slash your credit score for years to come.
Keep in mind that your landlord may run a credit check on you and your roommate before approving your rental application. If you’re the primary lease holder, it might be worthwhile to ask roommate applicants for copies of their credit scores, Griffin says. A good credit score means that a potential roommate has a past of handling money responsibly and will likely continue to do so in the future.
Fortunately, for rommates these days, there are myriad mobile applications — from PayPal to Splitwise and Venmo — that can help roommates set up and track payments when they owe each other for shared expenses. Calendar apps can help make sure you meet every due date.
[See: Dear Younger Me: 12 Financial Truths We Wish We Knew Earlier.]
Do your own financial due diligence. If you’re the roommate who is failing to pay her fair share on time, then you might find yourself quickly on the street or not invited to renew the lease with the rest of your roommates, so make sure that you have your finances together.
If you’re routinely asking your flatmates for extensions on shared monthly expenses, then consider building a budget to better understand what expenses are coming in and which are going out. You might be able to take on a side gig to ensure that you have enough extra cash to cover an unexpectedly high electricity bill one month. Renters insurance is almost always a fantastic idea and will protect your belongings if disaster strikes.
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Don’t Let Roommate Money Troubles Sabotage Your Finances originally appeared on usnews.com
