No. of Recommendations: 76
I intially joined the Fool when I thought that their columns on credit and debt were severely lacking. After 3+ years, I actually think that they have gotten worse!

Here's a column that offers 9 ways to get out of debt:

http://www.fool.com/ccc/debt/debt03.htm

In summary:

1. Pay more than the minimum
Okay, not a bad start. That's not where I would have started though.

2. Snowball your debt payments
Okay, I'll buy that.

3. Cash out your savings account
Uh-oh, you are starting to lose me. What if there is an emergency? Should I plan to borrow in that case?

4. Borrow against your life insurance
How is that getting out of debt? I mean he says "borrow." Also, that would mean that I have a whole life insurance and that is a rip-off in itself.

5. Finagle family and friends
There's a smart move. Go into debt with lifetime companions. Where was this advice picked up? From the local Xtreme skate park?

6. Get a home equity loan
Again, how is that getting out of debt?

7. Borrow from your 401(k)
There we go. Let's not only stay in debt, but if we lose our job the loan needs to be paid in full. Wow, that's two things that go together well.

8. Renegotiate terms with your creditors
That should be part of snowballing.

9. As a last resort, file bankruptcy
Another popular concept on this board.

Maybe someday we will actually get a Fool column that says "don't spend more than you can afford" and other common sense advice. I guess that isn't high brow enough.

Fred
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Spending less is key to avoiding cc debt, but only goes so far when you need to get out of debt. I had a few problems with the list myself, but overall they're valid strategies as long as one fully understands the consequences of each. In that aspect, the article could have done a better job.
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No. of Recommendations: 53
OK - I'm no great fan of most of the personal finance and stock advice here, either. So let's try to improve it.

Let's start by taking a look at the purpose of the article. Here's the link again.
http://www.fool.com/ccc/debt/debt03.htm
Take a close look at the sub-title, particularly the second sentence: Here are nine strategies for paying off high-interest credit card debt.

We're not talking about debt in general, here. And we're not even talking about credit card debt in all its potential variations. It's "high-interest credit card debt." That narrows the discussion down quite a bit. If you're carrying all of your credit cards at 0% offers, this article isn't going to apply. If you want to pay off your mortgage early, this isn't the right advice for you either. This is geared to stopping the hemmoraging from some of the nastiest debt around - credit cards at their worst.

1. Pay more than the minimum
Okay, not a bad start. That's not where I would have started though.

So where would YOU have started?

2. Snowball your debt payments
Okay, I'll buy that.

Good - at least there are some points of agreement.

3. Cash out your savings account
Uh-oh, you are starting to lose me. What if there is an emergency? Should I plan to borrow in that case?

Let's think about this one a bit. You're comparing the possibility of an emergency to the virtual certainty that returns on savings accounts are going to be less than the interest charged on credit card debt.

Remember our premise: high-interest credit card debt. In my mind, that 18% and above. Is anyone consistently getting that kind of return - after taxes - from their investments? Year in and year out? In cash, so as to be able to service the debt we're discussing? Raise your hands if you are. [looking for a quick hand-count] Just as I thought - only a couple. And if we pressed things a bit, I suspect that you either didn't understand my question, or you're not telling the whole truth.

But to answer your question directly: Yes. If you have an emergency borrow the money back. In the mean time, the amount you save in interest will, in 99.99% of the cases, be more than the earnings on the money in savings.

Of course, we should also define an emergency. I'll leave that to the reader.

4. Borrow against your life insurance
How is that getting out of debt? I mean he says "borrow." Also, that would mean that I have a whole life insurance and that is a rip-off in itself.

Back to the premise again. We're not getting out of all debt, we're getting out of high-interest credit card debt. As mentioned in the article, the interest rate on this borrowing is probably less than the credit cards. Lower interest rates are better than higher ones. They reduce the amount going to interest, making more dollars available for principle. And more dollars to principle WILL get you out of debt. ANY debt.

The fact that whole life insurance is (or may be) a rip-off is unimportant. If you've got it, it's money already spent. You can't get it back. Unless, of course, you borrow some of it back. Or die. So take advantage of what you do have available to you.

5. Finagle family and friends
There's a smart move. Go into debt with lifetime companions. Where was this advice picked up? From the local Xtreme skate park?

OK - I'm pretty much with you on this one. I particularly don't like the way he put it: "Finagle" people you know. That makes is sound like you're looking for ways to get the money out of them when they don't really want to help.

But don't write it off just because it's often a bad idea - or presented really badly. Sometimes - for some people - it might be a way to help get out of high-interest credit card debt.

If you've got family and/or friends that sincerely want to help you and are willing to loan you money, why not take advantage of the opportunity. But you do need to take advantage of the opportunity and NOT your friends. That's why Dave suggested writing up and signing a note, with regular payments. And then MAKING the payments.

6. Get a home equity loan
Again, how is that getting out of debt?

We've beat this one to death. Lower interest is better than higher interest. Home equity loans are almost certainly going to have less interest than high-interest credit cards.

7. Borrow from your 401(k)
There we go. Let's not only stay in debt, but if we lose our job the loan needs to be paid in full. Wow, that's two things that go together well.

Losing your job would, in my book, constitute an emergency. Borrow the money back from the credit cards and pay off the 401k loan. In the mean time, the payments will have been made with some certainty through paycheck withholding. And the interest rate is lower.

8. Renegotiate terms with your creditors
That should be part of snowballing.

What does snowballing - making the minimum payments on all but one card, with all other funds available for debt reduction going to one specific card - have to do with renegotiating?

You talked about what to do first - this would be one of the early ones on my list. Call the creditors and ask for a lower rate. Small time investment with the potential for a sizeable payoff.

But if you actually read the article instead of just scanning the headlines, you will recall that he's talking about renegotiating under the threat of a BK. That's heavier-duty renegotiaing than just calling up and asking for a lower rate.

So I'd really include renegotiate several times in my list. Do it early and do it often.

9. As a last resort, file bankruptcy
Another popular concept on this board.

Popularity has nothing to do with it. Sometimes - IMNSO a whole lot less often than the media and BK lawyers would have us believe - its the right thing to do. Are there too many BKs in this country? I certainly think so. Are there times when it is a better solution than anything else? Yep.

Sometimes lenders make bad loans. That's the nature of business. Not every transaction is going to happen according to plan. Sometimes lenders will step up to the plate, admit that things went south and write off a bad loan. But what about the lender that is simply unwilling to admit either its own error in making the loan or that circumstances have happened that no one could reasonably forsee? The debtor can't pay and the lender won't let go. BK becomes the recourse for the debtor. And when BK is the equitable solution, it should be used. I certainly find it preferable to debtor's prisons.

Maybe someday we will actually get a Fool column that says "don't spend more than you can afford" and other common sense advice.

How about this one?
http://www.fool.com/60second/debt.htm?source=PFinAg
First step: Resolve to spend less than you make.

Or here?
http://www.fool.com/ccc/debt/debt01.htm
Getting out of debt and staying out is simple: Spend less money than you make.

How about their debt workbook
http://g.fool.com/art/seminars/downloads/debtworkbook.pdf
Lesson 3: Budgeting

Like I said at the top, I'm no great fan of TMF's editorial content. It's the boards that keep me here. But at least we can critize the real problems instead of the imagined ones.

--Peter
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Take a close look at the sub-title, particularly the second sentence: Here are nine strategies for paying off high-interest credit card debt.

We're not talking about debt in general, here.


Peter,

I'm only going to touch on a few points because I am going to re-write my version of this article in the next week and am going to touch on some of your points then. I plan on not shutting up so I will put up.

Anyway, here is the first problem that I have with your post. The premise is based on the wording in the subtitle. The writer may or may not have written that. What the writer DID write in the article was this:

"Here are nine ways to get out of debt:"

Also, about the life insurance issue you said:

The fact that whole life insurance is (or may be) a rip-off is unimportant. If you've got it, it's money already spent. You can't get it back.

Ever heard of cashing out the value? That was my first $1000 toward debt repayment in my plan.

We've beat this one to death. Lower interest is better than higher interest. Home equity loans are almost certainly going to have less interest than high-interest credit cards.

Evidently, we have not beaten it enough. Four out of five people that do this end up back with credit card debt. Addressing the numbers without the behavior will make you worse off.

Also, since when is a lower interest automatically better? I have a SIL who just refi-ed her house and put a the new car in as part of the re-fi. Great deal! Lower rate! Right? No, because they will still be paying on this car when it worth absolutely nothing.

You really need to consider the time element more. Lower interest rates only gives more incentive to keep debt. If it didn't then there wouldn't be all this competition for even 0% balance transfers.

But if you actually read the article instead of just scanning the headlines, you will recall that he's talking about renegotiating under the threat of a BK.

That is horrible advice! I love quoting Wildgirl, "Don't alarm creditors!" Especially if it is a hollow threat.

Fred








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Oh yeah, I forgot to address this:

How about this one?
http://www.fool.com/60second/debt.htm?source=PFinAg
First step: Resolve to spend less than you make.

Or here?
http://www.fool.com/ccc/debt/debt01.htm
Getting out of debt and staying out is simple: Spend less money than you make.

How about their debt workbook
http://g.fool.com/art/seminars/downloads/debtworkbook.pdf
Lesson 3: Budgeting


I could not get the third one to come up, but if the first two, while near target, still do are far from hitting bull's eyes.

You asked what the first thing that I would do to get rid of debt is, and the first and foremost thing is to stop using the cards. That's not even mentioned in any of the articles.

But then again our versions of getting out of debt may be different. My version is to get out of debt as soon as possible, your version seems to be get the debt down so that you can live with it.

Fred
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5. Finagle family and friends
There's a smart move. Go into debt with lifetime companions. Where was this advice picked up? From the local Xtreme skate park?


The advice itself isn't BAD (except for the term "finagle"), provided that both parties have the same EXPECTATIONS regarding the help. Is it a gift or a loan? What are the repayment terms?

I borrowed $11k from my father recently to pay off high(er) interest rate credit cards (one at 18%, one at 12%, one at 9%). I'm paying him 5% interest, which I felt was fair for both of us: I eliminate high rates AND move the debt "off the books" and he gets compensated for the temporary loss of his money and the interest it would accrue.

The interest rate wasn't even the main motivating factor, it was the ability to ERASE $11k of debt from my credit report. I was trying to buy a house, and moving this debt really improved my credit score. If someone is buried by high rate cards, sometimes having friends or family absorb some of that debt will improve the debt-to-credit ratios enough to score rate reductions with the remaining creditors.

Normally I am against mixing business (including all money matters) and family, which is WHY we structured this as a business deal, and in this case "finagling family and friends" lent a HUGE helping hand to my "get out of credit card debt" strategy.

Seth
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We've beat this one to death. Lower interest is better than higher interest. Home equity loans are almost certainly going to have less interest than high-interest credit cards.

Evidently, we have not beaten it enough. Four out of five people that do this end up back with credit card debt. Addressing the numbers without the behavior will make you worse off.
...
You asked what the first thing that I would do to get rid of debt is, and the first and foremost thing is to stop using the cards. That's not even mentioned in any of the articles.

But then again our versions of getting out of debt may be different. My version is to get out of debt as soon as possible, your version seems to be get the debt down so that you can live with it.


Fred: first, I want to state that I totally agree with [what I perceive as] the crux of your statement: the ONLY way to get out of debt is to stop increasing new debt while paying off the old debt. I also agree that helping people to get out of debt, WITHOUT TEACHING THEM HOW TO STAY OUT, is just making it harder on that debtor.

However, that really wasn't the purpose of the article. The article, IMHO, was simply trying to outline some of the options that exist for managing or reducing credit card debt. Deciding when/how/why to use those options, and understanding the need to modify behaviour to not run it up again, is left for the reader to infer or another author to state.

Seth
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I'm only going to touch on a few points because I am going to re-write my version of this article in the next week and am going to touch on some of your points then. I plan on not shutting up so I will put up.

Excellent!! I'm behind you 100% on that. Even if our views diverge a bit, the dialog will be very interesting and worthwhile.

Anyway, here is the first problem that I have with your post. The premise is based on the wording in the subtitle. The writer may or may not have written that.

Quite true. Editors get their grubby mitts on things like that. But I believe that supports my point even more. I suspect the writer's assignment was to write on creative ways to eliminate high interest CC debt. He wasn't assigned to write a complete treatise on eliminating all debt, just on ways to work on one particular piece of debt.

If you surf around a bit more, you'll find that this particular article is just one of several in TMF's credit card center. I don't believe it stands entirely on it's own, but should be read in the context of the other articles. It's kind of like one chapter in a book.

<very divergent side issue>
And that actually points out a weakness of the internet as a medium for transmitting complex information. Pick up a book, and look at a chapter. You'll usually figure that the chapter must be read in the context of the entire book. If you read something in the middle of the book that doesn't make sense, you'll usually look for another part of the book to provide some clarification. However, you can go to a single web page directly and not realize that it is part of a larger work. It's much easier to read things out of context on the internet.
</side issue>

One thing I can fault the editors for is not clearly stating that all of these forms of debt transfer don't eliminate debt, just rearrange it. Once rearranged, you need to use the money that was going towards interest to reduce the principal. I suspect that we might be close to agreement on that point.

Ever heard of cashing out the value? That was my first $1000 toward debt repayment in my plan.

Sure - but that cancels the insurance as well. However, I see your point. Depending on where you are in the policy's "life cycle," surrendering it (and potentially replacing with term insurance) might make more sense than borrowing against the policy. I would argue that always advising to surrender the policy for it's cash value is as bad as only suggesting a policy loan. A third option might be to have policy dividends paid to you in cash rather than using them to purchase additional insurance. That would provide cash flow to pay off some debt.

Evidently, we have not beaten it enough. Four out of five people that do this end up back with credit card debt. Addressing the numbers without the behavior will make you worse off.

Going back to the possibility (which I believe to be the case) that this is only one article in a series on getting out of debt, there is an implicit assumption that you have already addressed the spending issues. But it would be worth a sentence or two to state that assumption directly.

Also, since when is a lower interest automatically better? I have a SIL who just refi-ed her house and put a the new car in as part of the re-fi. Great deal! Lower rate! Right? No, because they will still be paying on this car when it worth absolutely nothing.

I agree with you on the auto loan issue. But that's not the point. We're discussing high interest credit card debt here, not all debt. Until we reach some agreement on that issue, it's going to look like our positions are a lot farther apart that I suspect we really are.

(However, assuming SIL has the discipline to continue making the same payments toward the refi as she was to the old mortgage PLUS the car payment, she probably will be better off. But my assumption might not be very good.)

You really need to consider the time element more. Lower interest rates only gives more incentive to keep debt. If it didn't then there wouldn't be all this competition for even 0% balance transfers.

Here I think we have a true disagreement. Lower interest rates do not only give you incentive to keep the debt. They give you the opportunity to get out of debt quicker. It is up to the individual to choose whether they will lower their payments and keep the debt longer, or keep up the payments and get out of debt quicker.

--Peter
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I missed a couple of points I wanted to touch on. I think one was in your second reply and was a bit of a side issue, so I'll reply separately to that.

Peter:
But if you actually read the article instead of just scanning the headlines, you will recall that he's talking about renegotiating under the threat of a BK.

Fred:
That is horrible advice! I love quoting Wildgirl, "Don't alarm creditors!" Especially if it is a hollow threat.

The way I read the article, was to renegotiate under the threat of a BK when BK really IS the next option.

I do agree with Wildgirl on this point. (Aaak!! Did I really say that? Agree with WG?) It probably isn't a good idea to scare your creditors, especially when you want to get their help.

But when you've had that initial discussion with the attorney, and the attorney is ready to start the BK paperwork, it seems logical that it would be time to call the creditors one last time. Tell them your only option besides a negotiated agreement is BK. If you can get enough of them to give you some kind of break (in interest, principal balance, or payments) perhaps you can avoid BK. And avoiding BK would seem to sit pretty well with the popularity charts on this board.

I wouldn't use this tactic when BK isn't a reasonable option. I do believe that ethics has a place here. Using such a negotiating tactic when you aren't seriously considering BK is simply lying. But when you can truthfully talk about BK with your creditors, I believe that you should do so.

--Peter
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I could not get the third one to come up,

That was a link to a pdf file. You would need to have Adobe Reader (or earlier versions called Acrobat Reader) installed on your computer to open that link.

--Peter
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Rarely does it seem anyone disputes articles when they are first posted. Either no one's reading them, no one cares or no one realizes there are alternatives.

http://boards.fool.com/Messages.asp?bid=115671

rad
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buckmizer is already one of your Favorite Fools

jrsmith13
(also a Dave Ramsey fan)

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<<I borrowed $11k from my father recently to pay off high(er) interest rate credit cards (one at 18%, one at 12%, one at 9%). I'm paying him 5% interest, which I felt was fair for both of us: I eliminate high rates AND move the debt "off the books" and he gets compensated for the temporary loss of his money and the interest it would accrue.

The interest rate wasn't even the main motivating factor, it was the ability to ERASE $11k of debt from my credit report. I was trying to buy a house, and moving this debt really improved my credit score. If someone is buried by high rate cards, sometimes having friends or family absorb some of that debt will improve the debt-to-credit ratios enough to score rate reductions with the remaining creditors.

Normally I am against mixing business (including all money matters) and family, which is WHY we structured this as a business deal, and in this case "finagling family and friends" lent a HUGE helping hand to my "get out of credit card debt" strategy.

>>


Ummm. I'm not impressed.


You are still in debt, you've just managed to hide that fact from creditors. Your father isn't getting paid an interest rate that reflects the risks he is taking. You don't have all that much incentive to repay your father since the interest rate on the loan is now low.

In my view, you are taking advantage of your father with this kind of deal.



Seattle Pioneer

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Ummm. I'm not impressed.

You are still in debt, you've just managed to hide that fact from creditors. Your father isn't getting paid an interest rate that reflects the risks he is taking.


You missed the point, or maybe I didn't make it clear. I was already DETERMINED to dig my way out of debt before we struck this deal, but it was slow going thanks to high interest rates. He was aware of this and believed me when I said I would get out and stay out of debt. Perhaps he figured banking on me to keep my word was less risky than sticking his money in a mutual fund.

It was HIS suggestion that he lend me money, both to manage the interest and to help be buy a home. His idea was that he had cash savings generating around 3% in interest [don't know where], so if I paid him 5% it would be better for him AND would help me get a home.

In my view, you are taking advantage of your father with this kind of deal.

I didn't take advantage of anyone, we struck a mutually beneficial deal on terms we both agree on.

You don't have all that much incentive to repay your father since the interest rate on the loan is now low.

Granted, you don't know me or my family, or the values with which I was raised, so that's a fair statement. However, truth is I have THAT MUCH MORE of an incentive to repay my father because I gave my word to a family member. I take ALL of my debt seriously, even to nameless, faceless credit card corporations. I take debt to friends and family even more seriously, I'm sure if I represented myself differently the loan offer would never have come up.

Please note, I was NOT suggesting this type of deal is appropriate for everyone! My only point was that, if a family relationship exists such that both parties can truly trust the other to keep their promises, then an off-the-books loan can be a useful debt management tool.

You are still in debt, you've just managed to hide that fact from creditors.

I wanted to touch on this one last time, because again I fear you missed the point I was making. I KNOW I still carry the debt. However, I've transitioned the debt from a high rate balance on a credit card that was hurting my credit score to a low rate, off the books loan. YES I'm still in debt, but by making THE EXACT SAME PAYMENTS I was making before I'm getting out quicker by paying more principal and less interest each month.

The fact that this deal also helped me become a homeowner NOW, instead of waiting for the next 24 months of my debt reduction plan to run its course, was an added bonus.

Bottom line: borrowing money from family CAN BE a useful debt management tool when used appropriately.

Seth
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You are still in debt, you've just managed to hide that fact from creditors. Your father isn't getting paid an interest rate that reflects the risks he is taking. You don't have all that much incentive to repay your father since the interest rate on the loan is now low.

In my view, you are taking advantage of your father with this kind of deal.


Greetings, SP, I find this to be on the harsh side. It may be true that there is DEEP, 5-alarm fire incentive to pay back the loan ASAP on the part of the original poster precisely because he borrowed from his father and wants to be sure that his father is made whole ASAP!

In my case, my dad came to ME to ask me if he could help me by lending me money towards my downpayment or my student loan because he realized that we would likely strike an interest rate agreement for payback that would be BETTER than anything he could guarantee to get on the open market. Nobody would then be taking advantage of anybody else; rather, we would be taking mutual advantage of an opportunity to lower the interest rate for payback on the one hand and raise the interest rate for investments on the other hand. I am giving this consideration. I did thank him but graciously decline where the downpayment is concerned, for I am repaying it at 0%. But my student loan stands at 5.95% and that is the one I am mulling over regarding his offer to me. This is known as a win-win!

More than 20 years ago when I bought my first home, my dad helped out (of his own volition) with the downpayment then as well and I assiduously repaid him under a promissory note that *I* insisted upon, and at an interest rate that was fair to both of us. The repayment was done well ahead of schedule for I don't like obligating anyone, and he could literally take to the bank that he would see every penny back of what he lent me, plus the accumulating interest. I considered this to be my responsibility to protect his financial standing and I was deadly serious about insuring he would benefit from his largesse.

For decades, he was self-employed and his business was set up as an S corporation with our family members as shareholders. That meant that I needed to file the proceeds from the K-1 on my taxes every year. I considered this an honor to do so because he had provided for me growing up and now it was my turn to help the success of his business.

Family ties can be strong. It makes me uncomfortable to see these transactions regarded as taking advantage of ONE ANOTHER - I think it may really be the opposite, where we are financially strengthening one another and taking advantage of pre-existing opportunities in taxation and lending to do so. I know that in other posts you have written about the merits of internal family support to boost everyone's financial standing overall and I see the original poster's situation as falling into that category, too.

xraymd

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You are still in debt, you've just managed to hide that fact from creditors.

Seattle Pioneer,

I agree with the first half of your statement: Yes, he is still in debt. I think the OP realizes this.

I disagree with the last half of your statement. It is a creditor's choice to report information to the bureaus. Perhaps there are fees associated with doing so - this I don't know. But if his father wanted, he could report it.

If I transferred debt from a CC that only reports to (and uses) Equifax to a lender than only reports to (and uses) Experian, would you say I'm hiding the debt from the CC company? To me, this example and borrowing money from family are equivalent.

Dave
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<<You are still in debt, you've just managed to hide that fact from creditors. Your father isn't getting paid an interest rate that reflects the risks he is taking. You don't have all that much incentive to repay your father since the interest rate on the loan is now low.

In my view, you are taking advantage of your father with this kind of deal.

Greetings, SP, I find this to be on the harsh side. It may be true that there is DEEP, 5-alarm fire incentive to pay back the loan ASAP on the part of the original poster precisely because he borrowed from his father and wants to be sure that his father is made whole ASAP!
>>>


Perhaps it is harsh. But countless loans just like this are defaulted on as children find reasons why they don't repay such loans. No doubt some like it are repaid with the good faith and good intentions with which they are made. I hope this will be one.

<<Family ties can be strong. It makes me uncomfortable to see these transactions regarded as taking advantage of ONE ANOTHER - I think it may really be the opposite, where we are financially strengthening one another and taking advantage of pre-existing opportunities in taxation and lending to do so. I know that in other posts you have written about the merits of internal family support to boost everyone's financial standing overall and I see the original poster's situation as falling into that category, too.

>>

That's right, I do think that there can be a role for intra family loans that can build the wealth of an entire family. But they can also be the beginning for a lifetime of Economic Outpatient Care, in which wealthier family members are repeatedly hit up for "loans" by other family members who chronically overspend and are in debt.

Frankly, getting a below market rate loan from a family member to pay off higher interest rate debt is pretty much a definition of exploitive EOC. As a general rule, I'd say it's a lot better idea to let someone who has worked their way into such a situation to work their way out on their own.

Sorry, but I'm not much impressed by earnest expressions of good intentions to pay the debt back. Such loans always begin with good intentions.



Seattle Pioneer
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That's right, I do think that there can be a role for intra family loans that can build the wealth of an entire family. But they can also be the beginning for a lifetime of Economic Outpatient Care, in which wealthier family members are repeatedly hit up for "loans" by other family members who chronically overspend and are in debt.

I agree with SP. I have lent my daughter some money for part of the downpayment on her house with specific stipulations. She could have easily gotten a good interest rate on a loan because she has a good credit score and from my vantage point, she manages her money well. She didn't ask; I offered. That said, I would not have offered her a loan to bail her out of high interest consumer debt and I probably wouldn't have done it if she asked in that situation.

To me, helping her get started is different than fixing her problems.

rad


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That's right, I do think that there can be a role for intra family loans that can build the wealth of an entire family. But they can also be the beginning for a lifetime of Economic Outpatient Care, in which wealthier family members are repeatedly hit up for "loans" by other family members who chronically overspend and are in debt.


I tend to agree, but my dad seemed to find a way to deal with that which has worked well in our family. Dad would lend money to a family member if it was needed, and it was up to the family member [he only did this for children and grandchildren] to pay it back, but he wouldn't ask about it. But it made it perfectly clear upfront that if you borrowed money and chose not to pay it back, it simply would not be there the next time you needed it. But if you paid it back and needed to borrow again in the future, the money would still be there, and you could have it.

My brother has used the same general rule with his kids, and so far, of all the borrowing, it has all been paid back.

So even if it's not structured as a written business deal, and whether or not there is interest, it seems to me that this can be a one-shot deal and not perpetual if only the excuse of no longer having available funds because they were never repaid is used, whether or not that is true.
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To me, helping her get started is different than fixing her problems.

rad


A loan is a loan is a loan, imo. Doesn't matter what they're using the money for, you're still giving them a break. So what if it's for debt? People make mistakes and people change. People also get into horrible financial situations through no fault of their own. If I lend money, all I want to know is that the receiver has done everything to reduce expenses, control spending, and increase their income as much as possible. Borrowing from me is a last resort.
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I agree with SP. I have lent my daughter some money for part of the downpayment on her house with specific stipulations. She could have easily gotten a good interest rate on a loan because she has a good credit score and from my vantage point, she manages her money well. She didn't ask; I offered. That said, I would not have offered her a loan to bail her out of high interest consumer debt and I probably wouldn't have done it if she asked in that situation.

To me, helping her get started is different than fixing her problems.


Greetings, rad, what you say speaks the truth. My dad helped me of his own volition when I was in my 20's but he also knew that I was already responsible with money and that I could be completely counted on to repay the loan swiftly. Indeed, this was true and he acted to help me get started rather than to fix a problem.

Of interest, though, is my brother whom my dad also helped. My brother was in his 30's and had gone back to school to train in a completely different career, which is his present career today and which he is successful in. HOWEVER, he was not such a careful money manager as was I, and ended up having to declare bankruptcy shortly after obtaining his master's degree. This is the biggest shame of his life and I don't know the details but I do believe that he has made efforts to reaffirm the bulk of the debt that bankruptcy would have separated him from. I definitely know that my dad helped him, too, and this was both to get him (re)started and to fix a problem. While some would consider this Economic Outpatient Care, I know that my brother's hand was not out and has not come back out for more - my dad, who helped me while I was ALREADY starting from a position of strength, also helped my brother who found himself in a position of weakness. After giving it very careful consideration, and with the appropriate safeguards in place, my dad stepped in to give a lift to my brother who stumbled financially. It is now 10 years later and that action my dad took on his behalf ended up setting him to rights. Once again, it made him stronger and made the family stronger to help, JUDICIOUSLY, when it was clear that such help would neither be abused nor treated cavalierly. My brother has proven himself to be responsible, as am I. I never happened to have a financial stumble and my brother has never repeated his earlier stumble. But my dad helped us both and we have all benefitted from it.

Of course I am aware that there are many instances where family acts like predators towards a family member willing to lend money, and that is behind the concept of not persisting in providing Economic Outpatient Care. But a well-timed helping hand, with the appropriate safety nets, can spell the difference for a loved one remaining in a financial undertow or emerging stronger, more financially independent and societally productive. Circumstances being individual, I would wish to weigh them rather than issue a blanket "No" to bridging any perceived financial gap a loved one could be facing.

xraymd

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Fred

Picking nits on a bullet-pointed column and pretending it is the sum-total advice provided on a topic doesn't pass for legitimate critique. Setting up some straw-men and knocking them down doesn't make you "high brow". The Fool's credo is to "educate, AMUSE, and enrich" -- seems like the 2nd part is lost on you.

Maybe you have some original insight of your own instead of just criticism?

My guess is you do not.

~dswing
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