Help me help a family member get out of debt

[SavingsDad]

I have a family member in debt (my mom) and she need help. Her current debt is approx $35k (all on credit cards) and her minimum payment across all cards is approx $1300/month. Almost every account is past due with the exception of one and they all have interest rates in the range of 25% or more. I have gone with her to see a lawyer about the possibility of Chapter 7 bankruptcy but she does not want to go down that path. The current income is approx $1900/month. There is no 401k to tap into, emergency fund is under $500 and her monthly expenses (minus the credit cards) is approx $1000, and that is cutting it down the bare minimum.

I know that the majority of the forum is against filing for bankruptcy, can you give me reason why my mom shouldn't file? She is close to 60 with no sight of retirement soon. If there is an emergency (car breaks down, unexpected bills, etc), the family has to step in and assist. The problem is that the family (her kids) are not in a position to help out. I've sat down with her numerous times to go over her debt - she says that she is handling it but I know differently.

I am sure other members have gone through similar situations with family members and would appreciate any advice you could give me on how help her get a hold on this. I have convinced her to cut up her credit cards. She will have to get a 2nd job but I'm worried that she won't be able to work too many hours, considering her age and health (she already works a full time job). If I ran the numbers correctly correctly, she's gotten herself in a hole for where her expenses (including the min credit card payment) is $2300/month. With her income bringing in $1900/month, it leaves almost $400 short each month. How did this happen? I have no idea but I know this didn't happen overnight, this is something that has been accumulating for years - and she doesn't have anything to show for it for all this debt. There's no big screen tv, boat, electronics - it's just debt that my mom has slowly grown over the years to the point where it is now.

As for her selling stuff, she doesn't really have any personal property to help pay off the debt. She rents, owns a 94 Accord and I can't think of anything she has that would put a big dent. Obviously we're going to have to go through her stuff and see what can be sold but I don't know how much of a dent it will make.

So, my questions to everyone. In this case, is bankruptcy a bad idea? If not, what else can I do? Would calling the credit card companies and seeing if they can reduce the interest/payment be an option? Has others tried this in the past? I appreciate any feedback on this.

Thanks - SavingsDad

[glock35ipsc]

Are you, or any other siblings, in a position to make a "gift" to her of paying off/down the debt without incurring additional debt of your own?

If I understand Chapter 7 correctly, it will cancel all debts, but the courts might also liquidate property for the benefit of the creditors.

[SavingsDad]

No, the siblings are not in a position to gift her money. That's where the problem has been ongoing for some time. My sister has been helping my mom with payments and such for quite some time - she just is no longer in a position to do it (3 kids, husband and her started own business). As for myself, I helped buy her car and have helped her in the past. But with a new child and additional expenses that come along with it, I'm not in the position either. And that's where this problem came to where we are today, with neither of us being able to help her and she not being able to make the monthly minimum payments.

As for Chapter 7, there really isn't much asset-wise for the courts to take. I believe she would keep her car (it's worth less than $5k) and she doesn't own any other valuable personal property.

[boosami]

Sounds like she has regular income... what about Chapter 13?

[jIM_Ohio]

It sounds like the siblings are enabling their mother. Until your mother hits bottom (does not sound like she has), then this 35 will reappear once the debts are paid off.

Been there done that 3 times
Been there did that a 4th time after I wrote the book.

$900/month should pay the debt down in about 3-4 years. I think that is the course to follow. Because that way your mother learns to control her spending.

Is your goal to cure the debt or make your mother feel good about herself and her relationship with you?

[scfr]

It sounds like a tough situation, and I can't think of any suggestions that are very attractive, but here are a few that might help her keep her head above water:

- If she owns her own home, she could sell it or do a reverse mortgage.

- If she has her own place (whether owned or rented), could she move in with one of her children in exchange for a bit of room and board, or perhaps in exchange for providing some day care during her non-work hours?

[anonymous_saver]

Okay if you say the bare minimum of her monthly expenses is $1,000. Is that really true? Could she get a different place to rent for cheaper (a studio)? Or maybe a 2 bedroom and get a roommate (I'm sure at 60 years old she doesn't want to do this, but she needs to do something drastic in my opinion)? Could she sell her car (and take public transit)? Could she work overtime? Could she work a 2nd job? Could she get a new job that pays more? My point in posing all these questions is to get you to help her consider some things that your mother may not want to do, but would be good for her.

Has she looked into debt consolidation? I usually do not support this, but may in her case. It also might be time to have her call the CC companies and ask if they would be willing to settle with her, sometimes compainies will cut down the amount owned by half. Again, this will not do good things for her credit, but like you said she is 60 years old, so she needs to do drastic things to make this through this before she isn't able to work any longer.

Good luck, I'll look forward to hearing what your mother decides.

Is she putting up to her match in any retirement accounts her employer offers?

[SavingsDad]

Sounds like she has regular income... what about Chapter 13?

The lawyer we spoke to advised her against this.

Is your goal to cure the debt or make your mother feel good about herself and her relationship with you?

My goal is to get my mother out of debt and for her to be able to save for retirement. Yes, I do want her to feel good about herself - I'm sure this debt issue has brought her a lot of stress. My relationship with my mother is great and her being in debt or not doesn't change anything. I want to help her get out of debt and save for retirement. By helping I mean being supportive of her and helping her track her finances, things she needs help with.

- If she owns her own home, she could sell it or do a reverse mortgage.

She doesn't own her own home.

- If she has her own place (whether owned or rented), could she move in with one of her children in exchange for a bit of room and board, or perhaps in exchange for providing some day care during her non-work hours?
She is living with family right now to save money.

Okay if you say the bare minimum of her monthly expenses is $1,000. Is that really true? Could she get a different place to rent for cheaper (a studio)? Or maybe a 2 bedroom and get a roommate (I'm sure at 60 years old she doesn't want to do this, but she needs to do something drastic in my opinion)? Could she sell her car (and take public transit)? Could she work overtime? Could she work a 2nd job? Could she get a new job that pays more? My point in posing all these questions is to get you to help her consider some things that your mother may not want to do, but would be good for her.

The $1000 covers the following:
Rent + utilities: $250
Food: $150
Clothing: $100
Med/Dental: $50
Transportation (gas/maint/public trans): $150
Auto insurance: $90
Misc (personal items, entertainment): $200

She is going to look for a 2nd job to help with the bills. She also takes public transportation to/from work currently. She's been with the same company for 20+ years - i've tried for years to get her to change jobs but she is content where she works. As for working overtime, it's not offered currently.

Has she looked into debt consolidation? I usually do not support this, but may in her case. It also might be time to have her call the CC companies and ask if they would be willing to settle with her, sometimes compainies will cut down the amount owned by half. Again, this will not do good things for her credit, but like you said she is 60 years old, so she needs to do drastic things to make this through this before she isn't able to work any longer.
I have asked her to call the credit card companies to see what can be done. Whether it's to get the interest rate lowered, the minimum payment lowered or the amount owed lowered, anything would help out at this point.

Is she putting up to her match in any retirement accounts her employer offers?
She puts $50/month into a retirement account through work but the employer does not match the funds. She will also receive a pension from the job once she retires, though my focus right now is to get her out of debt, then focus on her retirement needs.

Thank you all for your input and advice. I have been talking to her about this today and hopefully she will follow through on getting a 2nd job and making it a priority to get out of debt. I know that if she doesn't make this a priority in her life, things will never change, no matter how much effort I put into it.

[scfr]

[I]The $1000 covers the following:
Rent + utilities: $250
Food: $150
Clothing: $100
Med/Dental: $50
Transportation (gas/maint/public trans): $150
Auto insurance: $90
Misc (personal items, entertainment): $200

I'd suggest cutting down the budget a bit more ... as low as $1000 may seem it really isn't the "bare minimum".

Here are some suggested changes:

Clothing = ZERO (until the cc debt is paid off) ... If that's too extreme, maybe $10-20 ... that should be plenty to replace essentials that wear out.

Auto Insurance: The car is a '94, and probably not worth a whole lot. (Nothing wrong with that. I drive a '99 and plan to get at least 5 more years out of it, hopefully 10.) If she has any coverage other than what your state's law requires, I'd consider dropping it to reduce the premiums.

Misc: I would think that the peace of mind that would come from paying down the debt would be more valuable than any entertainment, etc. Could this be trimmed to ... say ... $50?

The other categories look like they are already pretty lean. But if she focused on those 3 (Clothing, Misc, and Car Insurance), she might have an extra $250-300 each month that could go towards the CCs.

Good luck to you and your mom! I understand your concerns, and I hope you can help her and that she will be willing to make some tough changes.

[boosami]

The lawyer we spoke to advised her against this.

Did he have reasons for this? Just wondering why it wasn't considered an option.

I have asked her to call the credit card companies to see what can be done. Whether it's to get the interest rate lowered, the minimum payment lowered or the amount owed lowered, anything would help out at this point.

If the accounts aren't current, the credit card companies are unlikely to budge, especially on interest rates and minimums. You are more likely to be able to settle if the account goes into collections.

[jIM_Ohio]

The $1000 covers the following:
Rent + utilities: $250
Food: $150
Clothing: $100
Med/Dental: $50
Transportation (gas/maint/public trans): $150
Auto insurance: $90
Misc (personal items, entertainment): $200

Earlier you posted that the debt was 35k and she could sent $900/month to the debt.

That payment plan is 39 months (slightly more than 3 years)

Above would add $300 to this. $1200 payments on same debt is 29 months. With some intelligence I bet this could be knocked down to 24 months.

This is the way to go, IMO- the more to the debt, the better. List the cc, monthly payments, balances, interest rate and credit limits.

If public transportation is used, why does she need car insurance? That $90/month could reduce from 29 months to 27 months. Every little bit counts.

[minnie1928]

This sounds a lot like my mom & dad. As others have said, your mom needs to do something drastic, like a second job or moving to cheaper housing.

Here's what I did, which worked to some degree....but I'll warn you, it's definitely hurt my relationship with my mother over the past 3 or 4 years. I made mom (dad's currently in nursing home and he was never the spender anyway) cut up all the cards, & I became POA over both her and dad. I am POA on all her accounts and I for the most part manage her money. I think that's what did it, knowing that she is now accountable to someone for her spending behavior. Dad was pretty much a wet noodle so she could do whatever she wanted. Mom is on a strictly cash diet with no available credit.

Is it perfect...no, not even close. She still spends more than she makes each month, but it's down as far as she's willing to go (long story...let's just say her dog costs her over $225/month!). But, at least she's managing to stay afloat.

Good luck to you and your family. This will not be a pleasant experience....

[disneysteve]

The $1000 covers the following:
Rent + utilities: $250
Food: $150
Clothing: $100
Med/Dental: $50
Transportation (gas/maint/public trans): $150
Auto insurance: $90
Misc (personal items, entertainment): $200

She is going to look for a 2nd job to help with the bills. She also takes public transportation to/from work currently. She's been with the same company for 20+ years - i've tried for years to get her to change jobs but she is content where she works.

Is she also "content" with 35K in CC debt and monthly expenses that exceed her income by $400? I doubt it. I don't know what type of work she does, but she is making next to nothing. My wife is a file clerk, shuffling papers all day, and makes $3/hour more than her. She needs to find a better paying full time job AND find a second job as well until she gets her finances in order.

I agree that the budget needs work. $100/month for clothing? I generally spend about $300/year for clothing. She needs to cut that probably to zero for a while. And I don't know what "Misc" includes, but $200/month is a big chunk of change so I'd work on that.

[SavingsDad]

Thank you for your replies on ways to cut down on her expenses. I agree that she needs to cut back on clothing and "misc" expenses until she has her finances in order and has eliminated her debt. I will work up a new budget for her this weekend and I'm going to help her sell her belongings.

I will keep this forum thread opened and will keep you all updated on her progress. Thank you all again for your advice!

[maat55]

Her situation is not bleek, if determined, she can beat this. She will need to trim any expenses that are not absolutely necessary. A second job is a must.

She needs to cut up her CC's. Many people slowly go into debt on CC's to cover their living expenses and wait till it is too late to fix the real problem. A good second job would speed this process up.

Does she smoke, drink or any other habits that can be stopped? It's hard not to tell her to just file BK and start a new with a better plan to save for her future, but either way, she needs to make it her quest to be debtfree and save as much as she can. Is moving in with a child a possiblility?