No. of Recommendations: 1
Hello,

I am trying to get some advice/opinions on helping a brother with some debt he and his wife have accumulated. Here is the history:

They declared bankruptcy about 4 years ago and have run into some trouble again. Presently they have about $12k in credit card debt and some student loans. They accumulated the credit card for a few reasons, animal health issues, starting a new business, and not keeping good track of their financial picture. They used to argue about money and eventually my brother said forget it, if you want to pay the bills and keep track of the finances, you do it. So he disengaged from any bill paying because of the arguemnts it would cause. So then they started arguing about late fees and the high interest rates that resulted. They both realize this was a bonehead move.

For the last 3 months I have been counseling them on budgeting and money mangement, I am a CFP. The change in them has been fantastic. They are now discussing their issues and have set up payment plans with the 3 credit cards companies. They have started to use Quicken to keep track of cashflows. Each of them has spoken of the burden they feel lifted off their shoulders from being able to talk about the issue and having a plan to get through it. Based on what they are paying they could be clear of the cc's by the end of 2007.

My question is this: I get those 0% balance transfers all the time and toss them. I am considering trying to use one to help them get away from the rates of 15.99%, 15$, and 12%. I don't plan on using any of my money and would even try to see if we could get a joint account perhaps. I am cautious because they don't have a great history and don't want to get stuck with a late payment in my name. However, I would like to help my brother and it would save them a good amount of money. Maybe I should put some conditions on it about all the cards must be cancelled but one and only used for emergencies.

At no point have they asked for money, they have just sought advice and followed it very well. They even made it through Christmas within their planned spending.

Any advice is greatly appreciated.

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No. of Recommendations: 11
My question is this: I get those 0% balance transfers all the time and toss them. I am considering trying to use one to help them get away from the rates of 15.99%, 15$, and 12%. I don't plan on using any of my money and would even try to see if we could get a joint account perhaps. I am cautious because they don't have a great history and don't want to get stuck with a late payment in my name. However, I would like to help my brother and it would save them a good amount of money. Maybe I should put some conditions on it about all the cards must be cancelled but one and only used for emergencies.

I would only offer this kind of help only if:

1) I was willing and able to make payments myself; and
2) I was willing to consider such payments gifts.

Good luck,

Bruce
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No. of Recommendations: 15
Don't do it. It could easy cause long term problems with your relationship.

They have made excellent progress. Let them succeed on their own. It will make them more committed to never allow it to occur again and give them the knowledge that they succeeded.

Their rates are not default rates. In not to distant future, they should be able to obtain low interest rate balance transfers. Given their rates they have been increasing their debt, but have no recent late payments.

Have they tried to obtain low rate balance transfers? Do they know their FICO? Can they apply for a new card with a balance transfer offer?

Debra
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I agree with the previous two posters, giving money to them will only put a strain on your relationship. I also have to wonder why they would consider starting a business if they hadn't worked out a solid business plan (ie, at the very least having an emergency fund of at least 3-6 months)? This just doesn't make sense to me. But i do know, from experience, that once you lend them the money, the family dynamic will never be the same.



ramseesforever
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No. of Recommendations: 4
<I am a CFP.>

You have given them free financial planning. Consider that your gift to them.

electrasmom
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No on the BT. If you wanted to give them a personal loan and have them pay you directly, that would be different. Even with that, you might have to be prepared to write off the whole thing as a gift. Giving them financial counseling was plenty!
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Hi triurun and welcome to CC/CC!

It sounds like you have been very generous to your brother and sister-in-law, giving them services that they might otherwise have had to pay for.

Unless you are a marriage or couples counselor, however, you may be about to start practicing in a field you are not licensed for. It sounds like they understand what you've taught them, and that they have decent math skills. Thus, the remaining issues are not related to money but to their relationship. Time to bow out and let them do what they have to do.

Here's one thing you CAN give them: a subscription to The Motley Fool! Free trial is 30 days, or make your last investment in them and buy them a one-year membership.

Please keep us posted.

BklynBorn
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No. of Recommendations: 4
Don't give loans to family members.
If you do, they are aware they owe money, and are therefore in your debt. To avoid being reminded of this, they avoid you.
If they don't pay, at every family occasion in the back of your mind, as you ask him to pass the turkey, you are thinking about the debt and so is he.
If he pays on schedule as agreed, then it can be OK, but are you willing to risk the relationship on that chance?
Best wishes, Chris
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I'm with the majority on this one: don't do it.

If you make their debt yours, and they flake, it could harm your credit report and cause tensions between you all. Not worth it.

They are doing well so far - let them fix this themselves, it will be a good life lesson that they might not otherwise learn.

And I love BklynBorn's (sp?) idea about giving them a MF subscription instead. Teach a man to fish, etc.

You have done them a really good turn by educating them - that is the best kind of brotherly love you could show.

Good luck,
FIgirl
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No. of Recommendations: 2
My question is this: I get those 0% balance transfers all the time and toss them. I am considering trying to use one to help them get away from the rates of 15.99%, 15$, and 12%.

<snip>

At no point have they asked for money, they have just sought advice and followed it very well.



I wouldn't do it. Of course this is just my opinion, but here's my reasoning.


1 - They haven't asked for monetary help of this kind. You making this offer could very will impact the progress they are making - and not in the way you intend. They could be grateful at the offer, or put off since it was unrequested. Also, once the balance is out-of-sight, they might relax on their new found diligence.

2 - It's generally a bad idea to mix family (or friends) and money. If something goes wrong it can have a gigantic negative effect on your relationship.

3 - You can put any condition on this that you can dream of, if they agree to it, but how will you verify that they are following through? Sure they can cancel all of their cards but the one for "emergencies" but they can charge that one card, or even apply for others now that the debt is no longer in their name.

4 - If they don't pay on time, and you have to make a minimum payment to CYA, how will you feel? Will you lecture your brother and sister-in-law? Will that help them be more careful in the future, or will they regret the arrangement? (You are currently helping them out and they have been receptive, but once the debt is in your name, you could start to become more of a nag since your credit is on the line.)

5 - If you do this, and they start becoming a bit more relaxed with their finances, how will you feel? If they skip a payment for a month, and you find out they've recently purchased a somewhat pricey new toy, how will you react?


All in all, I don't think it's a good plan. Especially if they are "newly reformed" I think they should continue to do the heavy lifting on their own under your kind guidance. Nothing should prevent you from teaching them about snowballing, asking for lower rates, etc. All of these can help them reduce their interest payments without putting your own neck (credit) on the line.

Some people need to pay the interest to learn why they never want to be in debt again.

If you really feel like gifting them in a monetary way for their improvemnt, how about a membership to the Fool? A gift like this seems like something they would be open to, and could be worth far more than a 0% limited time offer.

Best of luck!

DizChick
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No. of Recommendations: 0
I would send them to "financial boot camp" at yahoogroups.com. This is a group that follows the principals of Dave Ramsey. An incredible amount of info is there regarding getting out of debt, staying out of debt and managing all sorts of financial issues. It is a great tool to change a person's mindset on money management.

Something to consider before changing your relationship with your family:
The borrower is the slave to the lender.

There is one thing I heard recently that I found interesting. You can add someone to your credit card as an authorized user and then they will have the benefit of your history of good credit added to their credit history. You could always have them cut up the card upon receipt so it cannot actually be used.

I'm not recommending this and don't really think this is a good idea, but it made me curious. I wonder if it really works? Anyone know anything about this?
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I am a little more inclined do help them out than others on the board, giving the high interest rates they are being charged, but only if (as others have said) you are ready to make the payments on your own should the need arise.

If you do this, you should keep in mind:

1) if they file bankruptcy, you will have no recourse and will be stuck with the debt.

2) you should make them sign a note, and pay interest to you, with default provisions just like the cc companies have. In fact, you could probably just copy most of the terms and conditions from a credit card you have. They must BOTH sign the note and make sure you say they are "jointly and severally" liable for repayment.

3) I would have them make the payments directly to you. Otherwise, you will not know if they missed a payment or are late.

4) Make sure that adding the debt to your own name will not tank your own credit rating by running a simulation (I like Citibank's credit monitor service but I think many others have simulations that are comparable). I put 60K on my credit cards over the past 12 months as a cash flow planning tool (I get paid 60-80% of my income at year end), and watched my credit rating drop 100 points for no other reason than the size of the debt, and had two companies change my credit terms because of this!!! Stupid and unfair, but true.

5) Remember that, if you choose to do this, it should be to help them out because he is your brother and you want to save him a lot of money on default interest rates. If he/they flake out, you have to pay the debt AND be okay with that (lesson learned of course). If that happens, you don't want it to significantly impair your relationship with them and therefore you have to be prepared to lose the money and not hate them.

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Some things to consider:

They may qualify for a lower interest rate on their own, and that would be preferable.

If they don't qualify for a lower rate, consider that the reason is the statistical likelihood they will default on the loans. The higher rate they pay is partially an "insurance payment" to cover the lender against the risk of them defaulting on the loan. If you loan them money and don't charge them interest, then you are effectively gifting them the amount of interest that is attributable to the risk. You are assuming the risk of default yourself without compensation.

I generally support the posters above that say don't do it, but if you do ahead you might want to consider charging them some interest. After all, you could take that 0% loan and put it into a CD and earn perhaps 4% with hardly any risk. It's not unreasonable to me to ask more than 4% from your relatives for taking on the risk of default.
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No. of Recommendations: 1
You are doing awesome at helping them as a CFP. Let them get out of this situation on their own. Yeah, they'll pay 15% interest for a while, but when they're done, they won't ever pay it again, 'cause they'll have done it on their own. If you transfer some of their balance to one of your cards, well...I just don't think it's a good idea. Anything goes wrong, and you're basically holding the bag.

They're doing well, give them love and support and good advice and soon enough, they'll be getting their own 0% BT offers in the mail. :-)


--Booa
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