Personal Finance
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May 7, 2001: 7:59 a.m. ET

Wedding loans, money market funds and sponsors can help pay the way
By Staff Writer Shelly K. Schwartz
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NEW YORK (CNNfn) - Sure, those poached pears and crab puffs were a smash hit on the big day. But when the wedding bills come due, it's those little extras that can put a crimp in your style faster than you can say "I do."

Wedding experts say brides-to-be too often get in over their heads when signing checks for their big day. That, they say, leads to reckless spending, heavy debt loads and a rough start to a new marriage.

"You get caught up in the mood and you go out and buy all these bridal magazines that show everything so gorgeous and, of course, you want it," said Doris Nixon; director of educational programs for the National Bridal Service and president of Weddings Beautiful Worldwide. "But, as with every other walk of life, control is part of taking charge."

She adds: "It's hard to start a marriage in debt. Money is the source of more arguments than anything else."

The good news is, with a little creative financing it is possible to have your cake and eat it too -- without sacrificing that fairytale wedding you've always dreamed of. Strategies include the pay-as-you-go plan, home equity loans, bridal loans and wedding sponsorships.

What's important to you?

The first step to avoiding a honeymoon hangover, of course, is to set a realistic budget and stick to it. Once that's complete, sit down with pen and paper and jot down your top priorities.

graphicAlways dreamed of a horse and carriage to deliver you from the white steeple church? Then go ahead and splurge, but the cappuccino bar has to go. Is a custom-made designer gown a must? Get those measurements going, but opt for a D.J. instead of a live band.

"We recommend highly to brides that they prioritize what's really important," said Richard Markel, director of the Association for Wedding Professionals. "Everything else will fall into place."

Once those steps are complete, the real challenge begins paying the piper.

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For the frugal bride and groom, one method that is gaining popularity is to seek out sponsors.

Under such arrangements, engaged couples typically contact wedding vendors to solicit free or discounted services in exchange for advertising on the big day.

Photographers, for example, might agree to snap pictures for free if the couple mentions the company's name in its wedding program. The cake decorator might likewise slash his or her price in half if the bride- and groom-to-be agree to leave business cards on the cake table.

It's a win-win situation.

"Word of mouth is very powerful in this industry, which is why this has a potential for working," Markel said.

One recent bride-to-be, who asked not to be named, noted, that anyone seeking out sponsors for discounts had best be prepared to spend some time and energy. She also noted its wise to draw up a legal contract, stipulating what both parties are responsible for.

Failure to carry out either end of the bargain would result in a breach of contract.

"I contacted quite a few people a day, nearly 50," she said, noting sponsors saved her more than $4,000 in wedding costs . "It really is a full-time job. You usually have to explain it to the vendors since this is still a new idea. In many cases, they've never heard of it."


Keep in mind, however, that not all vendors, especially the experienced ones, will even entertain the idea of sponsorships. And others in the trade say you might want to consider the tackiness factor, as well.

"I can't say I'm a big fan," said Carley Roney, editor-in-chief of The Knot. "I understand where the pressure is to do this because so many couples pay for their weddings themselves these days and they don't want to give up that dream of having a big wedding. But it seems like kind of a sell-out. This is a major life moment and I think you should do it within your means rather than trying to turn it into a marketing event."

Hitting up the lenders

Another option when it comes to covering your costs, of course, is to hit up the banks most of which now offer some sort of loan program designed for special events. A quick search on the Internet turns up any number of "wedding loans."

MBNA America Bank, for example, offers its own version of a wedding loan in conjunction with The Knot. The program allows couples to borrow up to $25,000 to plan their wedding, assuming their credit and income levels pass muster.

Interest rates start at about 13 percent, with terms as long as six years. There are no annual fees, no penalties for prepayment and the money can be used to pay for a honeymoon or whatever they choose.

"In survey after survey, our research shows that the biggest concern for engaged couples is money," said Adam Sandow, senior vice president of sales for The Knot. "Weddings should be as stress-free as possible and this joint program will enable new couples to enter marriage with one less worry."

Remember, though, that by taking out a loan your wedding could end up costing much more in the long run by virtue of the interest payments you'll owe. But, if your only other option is to pay with plastic, which could cost you 20 percent in interest or more, wedding loans do remain a viable option.

Pay as you go

It comes as no surprise, but the best way is to stay out of debt is to pay-as-you-go. Not everyone has the time horizon or financial means to make it happen, but you might be surprised how many of those bills you can knock out before the church bells chime.

Most wedding vendors including the baker, caterer, reception hall, dress maker and florist require a 50 percent deposit at the time you place your order anyway. That means you're already halfway there.

"Systematic savings always works the best, especially if you've got the time in which to do it," said Dennis Means, a certified financial planner in Denver, Colo. "I like people to incur as little debt as possible."


Means suggests saving as much discretionary income as possible in the months that precede your wedding. One of the best places to open an account, he notes, is a credit union, which generally will offer higher interest rates than commercial banks.

Same goes with most money market funds, which are fully liquid and offer interest rates in the 4.5 percent range. That compares with the 2 percent you might earn at the local bank. If you go with a money market fund, Means said, it's wise to shop around for one that pays interest monthly, if not daily. The more often interest is paid, the more money you'll earn.

A short-term certificate of deposit, or CD, also does the trick. Offered with a variety of maturities, including 3 months and 6 months, these fixed-income savings tools offer about the same interest rates as money market funds. They're a good place to park your dollars, Means said, but don't forget you can't dip into those funds until the CDs mature.

Family ties

Another common way to cover your wedding tab, or part of it, is to seek out family support. You may get help with all or part of your expenses by asking your parents for either a loan or a small gift of cash. As any bride and groom can tell you a little help goes a long way.

"Today, the groom's parents are helping out; the bride's parents are helping; and the bride and groom are both helping because people are spending more on weddings," Dixon said, noting the groom's parents often agree to pick up the bar bill or the dinner.

According to industry estimates, the average wedding costs about $25,000, depending upon where you live and the number of guests invited.

Dixon notes, however, that if an engaged couple wants the groom's parents to pitch in, etiquette dictates that the groom do the asking. Also, if both sets of parents are paying for the wedding equally, both of their names should be included in the invitation.

Tapping into your home

And then, there are those other sources of capital: retirement plans and home equity.

  My first rule of thumb is to stay away from your retirement plans.  
  Dennis Means, CFP  
Financial planners say you'll need to proceed with caution here. Most recommend you resist the urge to dip into these pots of gold unless you absolutely must.

"My first rule of thumb is to stay away from your retirement plans," Means said. "If it's a 401(k) plan where you can borrow against the value, that might be an alternative, but with IRAs and Keoughs, I'd recommend people stay away from those because that's going to generate a taxable event and if you're not 59-1/2 you'll pay an early withdrawal penalty, too."

Even with the ease of borrowing from your 401(k) plan, he said, a failure to repay your loan with not only result in a tax bill on the borrowed amount, but a 10 percent penalty for early withdrawal. Also, don't forget the opportunity cost of how much your money could have earned had you left it in the account.

Many brides- and grooms-to-be these days have a better option. With more Americans waiting to getting married later in life, and thousands heading back down the aisle for a second time, many already own homes from which they can draw funds.

Home equity loans are increasingly used to pay for expenses other than home improvement projects.

"I like individuals to use a home equity line of credit as opposed to a home equity loan, or second mortgage," Means said. "The advantage of an equity line of credit is that you don't pay interest on anything other than what you use. You could have a $20,000 line of credit, but if you only borrowed $5,000 you'll only owe interest on that."

Interest on both home equity loans and lines of credit is tax deductible and the rate you'll pay right now is about 6.75 percent to 7.5 percent, since your home is used as collateral.

Banks like Rock Financial, a division of the Quicken Loans company, even offer quick cash loans designed to help homeowners tap into their equity in 24-hours. Quicken is a CNNfn partner.

Such loans require no appraisal of the home and allow qualifying customers to borrow up to $35,000. "This is a niche product that helps to solve problems," said Stephen Luigi Piazza, a spokesman for Rock Financial.

"What we've noticed is that 40 percent of our customers (using these loans) have been married before and they already have real estate equity," he said. "They can move from two houses to one and get their wedding taken care of in the meantime." graphic