Mother has massive debt from divorce, recommendations?

[zeth07]

My parents are recently divorced, it took a few years overall and between the lawyer fees + some of my father's debt being under her name on a credit card + life stuff over these last few years her debt is out of control. It is upwards of 50k+ if I include her car payment as expected.

The real issue is we are trying to sell the house because of the divorce and she obviously can't get a loan for a new house until she deals with the debt. So the situation is that she needs to wait for our current house to sell until she can properly pay off the loans and then be able to figure out how much she can actually afford for her potential new house. This unfortunately puts her in a tight spot because there's no real way for us to get a new place until this place sells due to the ongoing debt.

She did get over 280k I believe through the divorce but it was part of his savings plan so she had to transfer it into a specific kind of retirement account that she can't really touch without heavy tax penalties. And even if she did that to clear the debt and just lose a large amount of potential money, I don't know how she would be able to pay the actual end of the year taxes if she withdrew that kind of large amount. So even though she has this large sum, she can't even use it towards the debt as far as I'm aware.

I briefly read about how you can use 401k money to go towards a house, so I'm not sure if she would have an option to transfer that money into a 401k instead of whatever it currently is (I'm not sure exactly), in which case she would then possibly be able to use that money to some degree on the new house but I'm unsure.

As it stands now, she's paying the minimum on the cards without issue but it is badly snowballing because she doesn't have enough money on hand to buy other things freely so it is constantly going into more debt with little to no money leftover at the end of the month.

The interest alone is over $700 a month total, so if there was less interest it would be A LOT easier to pay off the debt and have more cash on hand to not build more debt.

Which is why I'm here to ask what the best course of action would be?

Option A - Do I try to do balance transfers to 0% interest cards slowly but surely? Obviously not multiple at once.

Option B - Do I try to see if she can get a personal loan with something like SoFi to payoff the credit card debt and in theory have a lower interest rate and lower payments?

Currently her credit score is "Good" in the low 700s. I imagine in the short term either of those options would hurt her credit score but in the long run would probably help due to paying off the debt. But I don't know if I should try either of them or not if they aren't the best options. Credit Karma is saying her approval odds are good for the SoFi loan at least, but I don't want to try and apply for it, have it ding her credit score, then have them say she doesn't qualify.

In addition to those, the only additional thing I can personally do is get a second job just to be able to help her pay more of the debt off and not keep building it up. I do have "Excellent" credit at 803 but I don't make a lot of money. I would consider getting my own loan to help but I don't think they would give it to me in any kind of amount simply because of my current income situation but I don't know if that is a viable option just to give her some more breathing room if I could get a decent rate instead of the credit cards. EDIT: Should I consider doing 0% interest balance transfers under my name since they would be getting paid anyway? Is that even possible to go from one person to another?

Should I try either of those options (A or B) for her circumstances or is there some other alternative I should do instead?

Any help would be greatly appreciated.

[disneysteve]

Welcome.

You've given us a lot of information but almost no details. If you could answer some questions, it would help a lot in giving you advice.

How old is she?
What is her current monthly income and what are the sources of that income?
What are her current monthly expenses?
List her debts one by one with outstanding balance and interest rate.
List any and all savings and investments that she has.

In lieu of that info, I will comment on a few things.

1. DO NOT turn her debt into YOUR debt. The solution to her being buried in debt is not to bury yourself in debt. I know it's your mom and you want to help her but that's not the way to do it.

2. If she can get a lower rate credit card or personal loan, that would certainly be worth considering. It would allow more of her monthly payment to go toward principal and less to interest which will accelerate her repayment.

Again, I understand you want to help her but make sure you aren't hurting yourself in the process.

[TexasHusker]

I think you are putting far too much pressure on the situation by worrying about buying a "new place."

Sell the house, use the equity to pay off the debt(s), and then let the smoke clear. If there is still debt, she can work over the next year or so to pay it off, or you could take an early withdrawal on a portion of the 401K, paying the income taxes due plus the 10% penalty, and pay off the debt. I would do this only as a last resort, but it's not like you are decimating the 401K: Substantial assets in it would remain.

Rent a nice apartment for a year. Being recently divorced, your mother's ideas of what she wants in a house might change radically over the next year any way. She may actually decide renting is better. There are distinct advantages to renting for a single person.

[msomnipotent]

I'm pretty sure that you cannot transfer her balance to your cards without using a cash advance, and you don't want that. Balance transfers can help, but they have upfront fees and then you get all the interest tacked back on at the end if the balance isn't paid.

Is the house paid off and can she afford property taxes? If she can't afford the taxes, she should put it on the market before she loses the house. I wouldn't get a home equity loan as she can lose the house if she can't pay the loan off. Selling the house to pay off all debts and finding an affordable apartment sounds like the best way to go, especially if you two are unable to repair or pay someone to repair things that can do wrong. One little leak can do thousands of dollars in damage, and then you will have a hard time selling it.

Depending on what kind of rate she can get at SoFi, it might be a good option if she has a proper budget in place. You don't want to dig yourself out of debt and then climb right back in. She needs to be sure that she can get a loan for the entire amount and in a timeframe that allows her to pay it all back without stretching her budget too far. Otherwise, she will only be able to pay the minimum and then use her credit cards for every day buying.

As already mentioned, don't make this your debt. Use your cash to buy the everyday items if you want to help her out.

[disneysteve]

TH, that is excellent advice. I agree that buying another home should be at the bottom of the list at this point. OP, you said they were recently divorced. That is not the time for her to go out and make a major purchase like a house. She needs time to grieve the loss of her marriage and settle into her new normal as a single woman. She needs to get her finances on solid footing and build up some savings. Then she can start thinking about buying a place, but that step is probably quite some time in the future.

[Fishindude77]

I think you are putting far too much pressure on the situation by worrying about buying a "new place."

Sell the house, use the equity to pay off the debt(s), and then let the smoke clear. If there is still debt, she can work over the next year or so to pay it off, or you could take an early withdrawal on a portion of the 401K, paying the income taxes due plus the 10% penalty, and pay off the debt. I would do this only as a last resort, but it's not like you are decimating the 401K: Substantial assets in it would remain.

Rent a nice apartment for a year. Being recently divorced, your mother's ideas of what she wants in a house might change radically over the next year any way. She may actually decide renting is better. There are distinct advantages to renting for a single person.

These are my thoughts also.
Sell the house ASAP, clear up the debts ASAP and rent for a while.
Situation really isn't as bad as it seems, as it sounds like there are enough reserves to get the debts cleaned up. Worst thing she could do is sit around idle for very long and not take action.

[disneysteve]

One other question. How much do you anticipate the house selling for?

[bjl584]

I agree with the others.
Get the house on the market and sold. Pay off as much debt as you can, then see where everything stands.

[zeth07]

One other question. How much do you anticipate the house selling for?

Right now it is listed for 400k, I would guess it would sell for 350k but who knows. It's been on the market for a while but my father priced it too high compared to the market so no one was really looking until he lowered it and only now are we starting to get more and more people looking.

We are currently still living in the house and my father has to pay the mortgage as part of the divorce agreement. They still have 145k on it from refinancing, then my father will obviously get half the value cause of the divorce. Our realtor has a 1.75% fee and then there's the buyer fee plus who knows what else it will come to.

When it's all settled I imagine she might get 50k-70k out of it which would almost entirely go to the debt.

The issue with renting is we have pitbulls and I think most places won't let us rent and there's no chance she would ever get rid of them even given the situation. I imagine we could maybe find people who will rent out a house instead of an apartment which should probably not have an issue with the dogs in that case.

Assuming I could understand the situation correctly as I've never sold a house / bought a house, but when the house sells she could pay off the debt and then within the time needed to move find a place to rent temporarily just to get out of the house as needed. The debt would be cleared so she could afford the rent and be looking to get the loan now that they would see she no longer has a massive debt against her.

She is also going to get $1,000 or $2,000 (can't remember) a month in alimony for I believe 2-3 years only after the house sells as part of the divorce agreement. We don't want to take this into consideration for the loan since it is only short term but it would surely help settle in with the other bills or at least towards the would be rent while we look to get a house.

Her car will be paid off in just under 2 years so that is another chunk of cash that would be able to go towards other bills / rent / new mortgage.

The main issue currently is in the short term, which is why I was wondering about the balance transfer or personal loan. We have no idea when the house might sell but the debt would continue to build unless something is done outside of extra income.

I've used a site to check the debt snowball payoff but I have to imagine using a no interest balance transfer on at least some part of it or doing the small loan with a lower rate would make it easier, I just don't know if it's worth it to try. Part of me just doesn't want to risk it and just try to deal with it by getting another job.

[TexasHusker]

It sounds like the urgency comes down to some pit bulls. I love my pets and all, but I wouldn't recommend your mom pushing the financial envelope for the benefit of a couple of canines personally.

Many landlords do allow pets. If the pit bulls are at the epicenter here, find a pet-friendly rent house. If you can't find one, negotiate this with a landlord. Offer them another couple of $ thousand pet deposit, or another $100 per month rent, or a combination thereof. While expensive, this is a heck of a lot cheaper than potential financial ruin by rushing into another house purchase. When you are rushing, you always make financial mistakes, whether buying or selling. That further compounds your mother's problems.

Even if the house only sells for $300K, after subtracting approx. $7K for realtor fees and closing costs, your folks are still splitting almost $150K. That should be plenty to pay off her debit PLUS provide a sizable down payment for the next house, once you find it.

[disneysteve]

I think you've gotten some good advice so far but any more specific advice will really be dependent on getting some of the details I asked about earlier as we don't really know any specifics about the situation.

[disneysteve]

The main issue currently is in the short term, which is why I was wondering about the balance transfer or personal loan. We have no idea when the house might sell but the debt would continue to build unless something is done outside of extra income.

Does this mean she is not able to maintain the payments at this point? If the debt is still growing, this is a much more serious problem.

[Gailete]

Okay I will admit to curiosity as to why are you still living at home? Are you in high school or college? If you are out of school, do you work and do you pay your share of the house hold expenses? It sounds like you are planning to move with your mom to this new place? I take it you don't have the finances to buy a place yourself and mom?

I am not an animal hater, but I hate seeing someone so stubbornly in love with their pets, that many locales won't even let you own pit bulls, that it puts you seriously in even worse financial trouble. Without the dogs, you should be able to find an apartment to move into in a week or two. With them, good luck.

I take it your dad has input about the sale of the house currently, so if he tries to have it priced too high to make for a longer time for a sale, is this a way of making things harder for your mom? If he is paying the mortgage, what is to stop your mom from moving out into an apartment this month? I too think that buying a new house is the wrong move unless your mom has a good income at this point but it doesn't sound like it.

Does your mom work? If not, that alimony amount isn't going to be hardly enough to live on or buy a house with. Here is one of the peculiarities of the law that I discovered when I got divorced for her to be mindful of.

Alimony or spousal support payments are tax deductible by the payer and taxable income to the supported spouse. Child support payments, on the other hand, are typically not deductible from the income of the payer and are not included as taxable income to the supported spouse.

To actually give you the best advice, we need more of the basics facts, and has your mom asked you for help in this area?

[Smallsteps]

It sound like you really want to help which is great but the reality is sooner or later your Mom is going to need to access and plan her own budget. If you can help in the short term great but sooner or later you will move on too so she will need to plan her finances.
I wish more people but especially women planned ahead before the divorce is settled. I agree that you can not just let debt grow until the house money can be used to pay it off unless you have a plan consolidation sometimes just gives people more rope.
I am wondering if you have spoken to your mom about things most people in that situation would have already researched possible rentals or living arrangements.
Maybe she has a plan or it is not as dire as you think.
The idea that we will deal with it when x happens is what causes so many people make rushed and not always the best choices.

[snafu]

I appreciate you want to help your mom but she isn't choosing to see her precarious position. The divorce scenario is coming to conclusion and unless she has a well paying position, she needs to take drastic action.

1st sell, consign, donate, trash everything that has not been used in the past year. You might check 'The Life-Changing*Magic of Tidying Up:' on You Tube and begin sorting your own stuff as example.

2nd: The house is no longer your home, it's temporarily a product. As such it must be scrubbed clean with every tiny flaw fixed building[s] and property/landscaping; then 'staged' to get the bet possible price. Buyers pay a lot and they have huge expectations.

3rd: Moving is a lot of work and shockingly expensive. Mom needs to 'flag' the furnishing and decor she will need in next abode. All other must be sold. This is a huge, time consuming, frustrating task. If time is an issue, auction service is an expensive alternative.*

4th: I too have a dog throughly integrated into the family so I know the emotion. There is no way potential buyers will view a house with 2 resident pit bulls. Can dad take the dogs until next home is settled? I fear dogs will need to be re-homed. It is very difficult to get rental that allows dogs.

There doesn't seem to be money to buy another house. Mom will need every penny in the Retirement plan to support herself as a senior. That seems to be 35 years by current numbers so it needs to be left to grow at a sustainable rate.