ISO Advice for Parents

[wnlbutterfly]

This is in regards to my parents financial picture, so of course I don't have all the details, but I will give you what I know.

They took a Dave Ramsey class (in fact Mom even taught it for a couple of sessions), yet the first thing they did was pay off the house, not the credit cards, nor any emergency funds. My dad was an engineer but that company folded and he took early retirement and working part time, so his income took a dive. My mom has 3 businesses that are doing fairly well, but still a lot of overhead until the initial purchase loan is paid off. Probably a couple more years.

I don't know how much exactly on credit cards, but it is significant, probably $20k-$30k I would bet and pretty high monthly payments on it. Interest has been increased, so at least in the upper teens if not 20's on the interest fees on them (my dad was complaining about interest charges).

My mom keeps saying she can't do anything about it because her credit is shot. But when I ask what her FICO is she doesn't know and she tells me that they look at her debt load vs her income and give her a poor rating. I have tried to explain to her that FICO doesn't have the income listed on there (at least as far as what I have seen), which leads me to believe she only assumes her credit rating is bad.

What I would like to suggest to them is to get a loan against the house (remember, it is completely paid off), to pay off the credit cards. I just wanted to know what would be the pros and cons of this suggestion before I bring it up again.

Just recently my dad's clunker quit running and I suggested another car (not necessary new, just another reliable car), and she started in again about not being able to afford it or get a car loan due to bad credit.

Do you ever feel like you are talking to a wall when you try to help some people??? Thanks for any feedback!

[disneysteve]

Clearly, you (and they) need more info. They need to get their credit reports AND scores. If credit is good, they may be able to transfer the CC debt to a new, lower interest card. Borrowing against the home might be worthwhile but only if their spending is totally under control and they are no longer using the credit cards for new purchases. What is the source of the CC debt? Is it all business start-up costs?

As for his car, he could get a perfectly decent car for $5,000, so even with not so good credit, coming up with that much shouldn't be tough.

[cschin4]

Do you ever feel like you are talking to a wall when you try to help some people??? Thanks for any feedback!

Do your parents WANT your advice? Are they asking you to help solve their financial problems? If so, then you can certainly advise them but any advice they take is completely up to them.
Frankly, I think you need to be very careful in giving your folks advice. Their finances really should be none of your business.
And, I think telling them to take out a loan against their home is bad advice since they just paid off the house. I also think telling your dad to buy another car is bad advice. I don't think they should do either. Fixing the clunker is probably a far better plan. But again, I don't see how this concerns you and that should be their business. I rarely give financial advice to my parents. They earn their money and they spend it how they deem fit. If they are truly asking me for help, I will give advice. You may feel you are talking to a wall because they may not want your advice but are merely just making conversation when they talk about finances.

[disneysteve]

Frankly, I think you need to be very careful in giving your folks advice. Their finances really should be none of your business.

This isn't necessarily true. I've seen dozens of articles in both financial and non-financial publications about the "sandwich" generation, adult children dealing with their own kids and simultaneously dealing with aging parents. Getting involved in the parents' finances is always at the top of the list of things to do.

I think if your parents are having financial difficulty and you are in a position (experience and knowledge-wise) to help them straighten out their situation, you should certainly make the effort. If they say they want to handle things on their own, I guess you have to respect that, but I'd keep a close watch on things because if they run into trouble, you will end up being the one having to bail them out.

[wnlbutterfly]

It seems the credit cards were for extras, for example, she made several trips out of state to visit family. All went on a credit card. But this is something that has been snowballing for awhile on the cards, I expect that they probably had only been paying the minimum.

My dad was suppose to get some info at the bank about a lower interest card (he is the one that told me about it), but I don't know if he followed up on that.

His clunker is already past what you would normally drive (300k miles), he has hit at least 4 deers with it, looks awful, but until recently was running really well. They live too far from town not to have reliable transportation.

The business is a franchise, she has three offices and they are holding their own. It is a service-based business (so nothing she could sell to pull in money). It has been implied that when she retires I will take over the business, however, if it is causing them financial problems, I am willing to suggest that she sell one of the offices (which she could).

$5,000 should be easy IF you had any savings. I don't think they do or they would have already picked up another car.

No, it's not mere conversation, my dad's income is going to be reduced even more (drop in hours), and I just wondered if there was any other suggestions that could be made.

OH, I completely agree about the need to pull a credit report to really SEE what is going on. I will toss that out there again and see what happens.

And last but not least, I am an only child, so yes, if they run into trouble I will be the one having to bail them out.

[disneysteve]

$5,000 should be easy IF you had any savings. I don't think they do or they would have already picked up another car.

I didn't mean 5K should be easy for them to pay for. I meant that getting a 5K loan probably wouldn't be difficult even if they didn't have terrific credit. It would be easier than getting a 20K loan, I would think. Lots of used car lots offer financing for everyone. The rate might be high, but at least on a 5K loan, the actual amount wouldn't be too terrible.

[boosami]

They took a Dave Ramsey class (in fact Mom even taught it for a couple of sessions)

Why is your mother teaching a DR course when she is clueless about her own financial situation? That's frightening.

[wnlbutterfly]

Thanks....actually we have all banked at the same small bank since I was in HS and they are really good about car loans with us, and I did mention that to her again. Yes, they could get a $5k pretty easily if they just asked.

It just feels like they are only seeing the problem at hand, but not ways to find solutions. Does that make sense? I have always been the type to problem solve, if there is a problem...what can be done? and if that doesn't work then what?

I know getting a new mortgage on the house (not a full mortgage, just enough to cover the outstanding debt) is drastic, that is why I didn't want to suggest it if there was other ways to deal with this (or other things to suggest for THEM to deal with it).

[wnlbutterfly]

Boosami, You saw the irony also!

I guess it is one of those things "do as I say, not as I do.". I think the reason she jumped to the home mortgage payoff instead of following the steps of DR is because they didn't have much left on the mortgage, it was "doable" right then, and the other steps seems so out of reach. That is just my guess.

[Seeker]

Boosami, You saw the irony also!

I guess it is one of those things "do as I say, not as I do.". I think the reason she jumped to the home mortgage payoff instead of following the steps of DR is because they didn't have much left on the mortgage, it was "doable" right then, and the other steps seems so out of reach. That is just my guess.

That, plus there's a certain amount of comfort that you feel when you own your home versus owing on things that have accumulated over time. The home is a stable thing that you may not ever intend to give up or live without. Other things do not give that sort of satisfaction.

My mom keeps saying she can't do anything about it because her credit is shot. But when I ask what her FICO is she doesn't know and she tells me that they look at her debt load vs her income and give her a poor rating. I have tried to explain to her that FICO doesn't have the income listed on there (at least as far as what I have seen), which leads me to believe she only assumes her credit rating is bad.

FICO does not know or care about "income" per se, they only make available the history and the amounts paid versus due; they don't rate income.... only your payment history.

But she's correct that the loaning company will ask for income and look at the FICO to determine what they'd be willing to grant your folks.

Be aware that if they try to get another car and the FICO is not great, then some car dealers will try to sell new cars under "leasing" terms. Do NOT fall for that.

If the credit cards are in the 20% interest rate range, then there's a problem forming.

If they are asking your advise as their son, then get the clear information (the most recent CC statements) you can find and tell them that in order to give the best advise, you need the facts. Not conjecture... you need real numbers.

With that statement, draw out a reasonable payment plan on a spreadsheet with current payment, and your proposed increases in payment to reduce that debt and then ultimately entirely eliminate it. Give them the spreadsheet and show them a plan. If they are in with DR ideals, then a "plan" laid out for them to follow would be difficult to argue with.

The car, it cannot be a new one at this point in time. With 300k miles on the old; I'd find something for them at a reasonable price. Do you know any mechanics that can help you find a good used reliable car for them?

Talking with folks about money can be difficult and in some cases, you have to be ready and willing to accept the fact that you can only advise them. You cannot make them do something they do not wish to do. DO NOT take it personally, if they choose not to do what you suggest or lay out for them. Do not fight with them over the facts either ; just suggest, and if they do not accept, it's their choice. Know that you tried to help.

[LivingAlmostLarge]

I talk to a wall all the time with my parents. My mom never listens. She keeps making stupid financial decisions. It would be GREAT if they would draw up a will and stuff, but hey, so what if they are 57 and 78, what do they need a will for? Or end of life directives? They aren't going to die anytime soon and if they do, they are DEAD so I have to deal with their crap.

Literally that's what my mom said. You deal with it. Lovely attitude. Sometimes people need a good swift kick in the rear.

[wnlbutterfly]

Good news, my dad got his beater car running again.

We visited today, and I did NOT bring up money, however, she told me she checked her credit report and it is mid-700's. Excuse me...all this time she has said it was lousy (I knew she needed to find out). But she had co-signed a loan for her brother, and he has been off and on with the payments, so she assumed all this time the late payments were being reported and they weren't. Trust me, she won't do that again and that car will be paid off soon.

Remember, I did not bring up money nor was I asking for any of this info, but she went on to say that she has about $12k on credit cards, and my dad has around $30k on his. I am pretty certain they are over 20% on the interest rates.

She also made the comment that she didn't think they could get a loan against the house because it needed painted, that they would say it was worthless. I didn't say anything, other than "the land has to be worth something". It's okay if they don't want to borrow against the house, and again, she brought this up, not being defensive, it was more like she was just talking it out, thinking through some of the possible ideas.

I think she is going to check about changing the loan that is on the business, she did have a line of credit with the corp office and then they cut it back, so she might go back to the local bank and have him redo the loan, and then she said she could pay off the credit cards and not be paying out that monthly expense, and she plans to start her social security next year as well.

All of this was just her talking and me listening, I didn't toss any ideas. I do know they do have good life insurance so if there is a lot of debt at their passing, I do think the insurance will more than cover it. For a few years she didn't have it and kept saying if something happened to her I would just take over the business, but there would have been no way for us to be able to afford to do so. Finally she figured that out and got insurance..WHEW!

Thanks for letting me chat about the situation, it does help!