No. of Recommendations: 24
Please listen to xraymd and the others! I am not much younger than your parents, and I have to say that I'm finding your approach to this is naive at best and incredibly disrespectful at worst. I KNOW you think (with all the wisdom of your 22 years on the planet) that you have found The Way to Solve Mom and Dad's Financial Woes, but the plain fact of the matter is that this is not something you can do FOR them.

To answer your latest question, "what could go wrong with the pension?", how about the following:

1. If they have not solved the over-spending issues, they WILL end up with the credit cards charged back up and twice as much debt as they started with. I know you don't seem to think this is a big issue, but MOST people who "pay off" their debts via home equity loan or inheritance or pension loan DO end up charging the credit cards back up. Remember that all you know about their finances is what they tell you... are you absolutely positive you've got the whole story?

2. If they leave their jobs for whatever reason, the loan may well become due and payable at the time, and if they can't pay it they will owe taxes and penalties on the amount borrowed.

My DH and I are about the age of your parents, and we paid off almost FOUR TIMES the amount of debt you parents have, using good old LBYM and the snowball method. The thing that really made us go "ah-ha" was joining the web site (disclaimer: it's a pay site, but I have no business affiliation with it) and working the calculators on the site and doing the "interactive money makeover" that talks about how to STOP USING DEBT AS A SOURCE OF INCOME.

The thing that you don't seem to understand is that the debt is not the problem. The debt is a SYMPTOM of the underlying problem, which is that they are not managing their money properly and are living beyond their means. Unless and until they get THAT problem solved (including funding an adequate emergency fund and providing for normal but irregular expenses), anything you talk them into doing will be a bandaid at best and a catastrophe at worst.

Repeat after me: "Mom and Dad, I was wrong about the pension loan..."
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