Author Topic: Bank of Mom  (Read 8614 times)

Bristlingblackmustache

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Bank of Mom
« on: September 09, 2013, 08:55:55 PM »
    Can anyone give a opinion on my plan to borrow money from my mom and dad to pay of my rediculous 22K credit card debt, the result of a midlife crisis travel binge to Belize, Jamaica, England, Scotland, Northern Ireland, Ireland, Wales, and Cornwall.
    I've gotten a late start on getting my shit together. But lately I've cut my land line, direct tv, cut my electric bill nearly 50% using no AC, and I haven't eaten out in two months. Oh, and I ride a bike virtually everywhere, including the grocer today with my trailer I acquired from a cousin for free.
    I have ten years left on a fifteen year note @ 4.5%, mortgage is $2100.
    Got a late start in the fire service so theoretically I have fifteen years for my 20 year pension which gets me 50%.
    With my newfound frugality I think I can cut my FI date to ten years, although I love being a firefighter so I might just keep going!
    Almost forgot, I'm 42

mm1970

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Re: Bank of Mom
« Reply #1 on: September 09, 2013, 09:34:36 PM »
Um, well...

No.

You are 42. (I am 43).  You made a mistake -  HUGE mistake, own up to it.  Pay off your own debts.  Consider that interest you are paying as punishment.

You know "run around like your hair on fire...etc etc." to pay off your debt.

Don't borrow money from your mom.  (My brother was still asking for money from my mom when he was 39 - which was when she died.)

imustachemystash

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Re: Bank of Mom
« Reply #2 on: September 09, 2013, 10:31:36 PM »
Nope.  You need to repay those debts yourself instead of relying on economic outpatient care.  By trimming down your budget you should be able to get out of debt on your own and that will be a lot more satisfying. 

Mark31

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Re: Bank of Mom
« Reply #3 on: September 09, 2013, 11:27:13 PM »
If you can offer them a higher rate of return than they are currently getting (do they have money sitting in a term deposit for example?) then it could be a win all around.

In my opinion, it would be wrong to borrow the money and not pay them interest on it.

Bristlingblackmustache

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Re: Bank of Mom
« Reply #4 on: September 10, 2013, 12:01:28 AM »
Son of a bitch! I forgot to add that part. I'm going to pay interest, I was going to offer 5-6%. I really am not a deadbeat. I have repaid every debt I've ever assumed. My credit is flawless, with the exception of the credit cards. I built an apartment addition on my house two years ago and they live with me. I pay all utilities including cell phones, they pay for their food and tv. They are selling a house soon and the money would come from that.

gooki

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Re: Bank of Mom
« Reply #5 on: September 10, 2013, 01:07:22 AM »
If your parents are up for it, go for it. Write up a contract. Put a penalty clause for any late payment.

StarryC

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Re: Bank of Mom
« Reply #6 on: September 10, 2013, 10:12:43 AM »
If your credit is flawless or you own your home, you could probably get credit someplace else without any emotional consequences.  (personal bank loan, home equity line of credit, lending club).  Why did you first think of your parents?

hybrid

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Re: Bank of Mom
« Reply #7 on: September 10, 2013, 10:58:42 AM »
If your Mom can get a reliable 6% it's a good deal for both of you.  But my oh my, what a bunch of baggage both parties will be bringing to the table.

First of all, like any loan, your Mom gets to assume all the risk.  And there is risk, you could be in an accident tomorrow.  Then, what would happen if your Mom decides one day that she really needs that principal back on the hurry-up (say, for medical reasons, your mother is no spring chicken any more).  Can you quickly secure that principal in other ways?  And 21K is not a small amount of money.  If this were $2100 then it would not be a big deal.  And if you can pay this all back in one year the difference in interest rates isn't that significant in the first place.  My assumption is this is a longer term loan.

Knowing nothing else whatsoever than what has been presented, I see a child of mine that rang up 21K on a good time.  Personally, I would not be floating a loan that large to that kind of credit risk.  Not for a mere 6% anyway.

I'm sure this sounds harsh, but I have no emotional ties to this whatsoever and I am looking at it from your mother's financial (and not emotional) perspective.  Don't borrow that money.

Russ

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Re: Bank of Mom
« Reply #8 on: September 10, 2013, 11:02:16 AM »
Only you and your mom can work out if this is right for you, but I'd have a real hard time mixing family and business. Causes a whole bunch of conflicting emotions IMO, which hardly anybody likes.

catmustache

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Re: Bank of Mom
« Reply #9 on: September 10, 2013, 11:10:03 AM »
Depends on her financial situation and how reliably you'd pay the interest, I'd think. If you'd be borrowing it from somewhere else anyway and it won't make her life harder, it can be a win-win where she'll get her money back with interest and you'll get a lower interest rate than at the banks.

That said, it would also depend on your relationship with her. If it's not going to be a business transaction, but will turn into something that's held over your head as a "Remember when you did that stupid thing?", then it might not be worth it.  Really comes down to how both of you view money.

willn

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Re: Bank of Mom
« Reply #10 on: September 10, 2013, 11:10:38 AM »
Oh hell no.

What's your take home pay?  22K in debt isn't that much, if you really carve the budget, work extra jobs, you should knock this out in less than a 18 months. The trivial savings from your cc interest compared to interest on your parents is NOT going to change your life.

But if your parents have a crisis or need the money you borrowed from them, or if you break both legs in bike accident and can't pay them in a timely manner, well, owing your parents will change your life and not for the better...

Mega

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Re: Bank of Mom
« Reply #11 on: September 10, 2013, 11:16:05 AM »
Do you have any siblings? How would they feel about this? They may only hear gave $22k to my brother?

What happens if you parents pass away while the loan is open? Who would you owe the money?

You say you have a house. Can you take out a HELOC and repay the CC? What about one of those promotional 0% CC balance transfers?

Lots of options other than mom.

Bristlingblackmustache

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Re: Bank of Mom
« Reply #12 on: September 10, 2013, 10:31:58 PM »
So thanks for all the honest feedback. The only reason I thought of this is because I saw MMM recommend it to someone in the blog. The HELOC option I'm reserving for a possible pending divorce, I keep house she gets 30k in equity. Take home is under 2k/2weeks, im a firefighter not a software engineer. Spouse works in Iraq (private contractor) sends 1k/month. I have great relationship with my parents, THEY CHOSE TO MOVE IN WITH ME! And my brother could care less who got what from mom, we just aren't petty fuckers like that, squabbling over the family silver whatever. And it would be paid back reliably @ whatever % they want. Sorry I got so defensive, I just thought everyone would unanimously shout "yay, you are so smart!" anyway no more admonishing lectures about responsibility. I have to pack, I'm off to Thailand.....;-) jk

.22guy

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Re: Bank of Mom
« Reply #13 on: September 11, 2013, 12:20:10 AM »
People on this forum don't tend to pussyfoot around, you will always get honest feedback. Sorry if that wasn't what you were expecting.

I also think it's a poor decision, but ultimately it is up to you.

Bubbles

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Re: Bank of Mom
« Reply #14 on: September 11, 2013, 02:49:12 AM »
I'm so very surprise with the negative responses, I personally think its a great idea and super mustachian. It really depends on the synergy of your family I suppose, some families choose to stay out of each others business, while others will jump at any opportunity to help each other out. By borrowing (and of course paying back when you can :) will save you so much interest wise. I know my parents would never charge me interest and vice versa and we constantly lend  each other money/help/ whatever whenever someone needs it. In fact we constantly ask each other if they need anything, it's family! Eesh. As long as you will pay them back, and they're ok with it, it's definitely the way to go. Don't listen to the naysayers, do what will provide the best outcome and future and be responsible. It's silly to borrow from the bank and take the interest hit because "you messed up" (like no one went through personal crisis before) /end rant

markbrynn

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Re: Bank of Mom
« Reply #15 on: September 11, 2013, 03:15:58 AM »
If I understand correctly, OP is paying for his parents to live in his house (only food and TV are excluded), so their finances are already intertwined. For those of you who like a business-like approach with family, it seems like the loan is "secured" against their unpaid rent and utilities.

The main concern I would have is to make sure OP takes the loan as seriously as he would if it came from a bank. Some people stop paying debt when they know the consequences are not as severe.

chasesfish

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Re: Bank of Mom
« Reply #16 on: September 11, 2013, 04:16:12 AM »
In my opinion, it just depends on family politics and your comfort level.

I have broke parents, so my first thought was naturally "heck no".   However, you can give them a better return then a bank CD if they have the money sitting around.

Mega

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Re: Bank of Mom
« Reply #17 on: September 11, 2013, 06:32:28 AM »
So thanks for all the honest feedback. The only reason I thought of this is because I saw MMM recommend it to someone in the blog. The HELOC option I'm reserving for a possible pending divorce, I keep house she gets 30k in equity.

Talk to your lawyer first. Shit can get crazy in a divorce.

Is the CC debt considered a mutual asset?
Would the loan from your parents be considered a mutual debt?
What happens if she assumes ownership of the debt and then doesn't pay?

Depending on debt ownership, it may make sense to use the HELOC for the CC, and your parents to payout her equity (since they couldn't live with you if she owned / forced sale of the house)

frugaldrummer

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Re: Bank of Mom
« Reply #18 on: September 11, 2013, 09:57:59 AM »
Oh yeah -
if there's a possible divorce looming, you definitely want to talk to an attorney and figure out the best way to handle all this. 

And I wouldn't borrow the money from your folks unless it is a small part of their retirement savings.  Otherwise you ARE exposing them to risk (what if you got very ill and couldn't work - and could';t pay them back?)  So while the increased interest rate for them would be a good thing, it also comes with considerably more risk - are they comfortable with risk?

frugaldrummer

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Re: Bank of Mom
« Reply #19 on: September 11, 2013, 09:59:47 AM »
Oh - and P.S.?  If you can save your marriage, that might be the best Mustachian move.  Sorry to hear about your marital troubles.

plantingourpennies

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Re: Bank of Mom
« Reply #20 on: September 11, 2013, 10:21:30 AM »
Mrs. PoP and I borrowed 50k from our parents @6% with a balloon to purchase a duplex. We paid it off in...3 years I think?

If you are going to pay them interest, and are currently paying interest on your credit cards, you're basically playing interest rate arbitrage.

Just keep it simple, pay the CC debt off quickly and avoid family entanglements...

Best,
Mr. PoP

Bristlingblackmustache

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Re: Bank of Mom
« Reply #21 on: September 11, 2013, 01:29:36 PM »
Good stuff everyone, thanks a million! I may have saved the marriage. Our nine year old spending three weeks in Bali with his mom had a lot to do with that!

bo_knows

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Re: Bank of Mom
« Reply #22 on: September 11, 2013, 01:43:04 PM »
Mrs. PoP and I borrowed 50k from our parents @6% with a balloon to purchase a duplex. We paid it off in...3 years I think?

If you are going to pay them interest, and are currently paying interest on your credit cards, you're basically playing interest rate arbitrage.

Just keep it simple, pay the CC debt off quickly and avoid family entanglements...

Best,
Mr. PoP

We did something similar (to avoid PMI), but it was my in-laws that proposed the deal.  I'm not so sure I'd be comfortable asking them for it (even though it's well within their means).

Megatron

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Re: Bank of Mom
« Reply #23 on: September 11, 2013, 02:43:39 PM »
It looks like your relationship with your parents is pretty close. Similar to mine. Ma and Pa would get mad at me if I didn't ask for their help. But different strokes for different folks, I guess. Years ago when I first got out of college, I asked Bank of Mom for a few thousand dollars to backpack Europe for 2 months. I had an engineering job lined up already and asked them to delay the start date, which was the best thing I've ever negotiated for a job. Ma&Pa never asked for repayment and I sorta "forgot" even though I told them I was gonna pay her back. and in College, I asked Bank of Mom for a downpayment for a car(facepunch) but have yet to make a single repayment. but then Since out of college, every year my sister and I have taken turns paying off their property taxes (5k), Dad's car payments (20k), Monthly cellphone bills (Family plan), Groceries (sometimes), Any dinner / restaurant outings, Birthdays (usually a check each for 500 - 1000)..etc. Towards the end of their mortgage about 2 years ago. My sis and I just "loan" them 30k for the remaining payoff amount. Ma & Pa supposedly have a bank account that they have been savings to pay us back since, but we don't keep tabs because we know Bank of Ma & Pa is good for it when we need it. Recently, when I told Bank of Ma&Pa that my fiancee and I are looking to buy a house, their first thought was "do you need money for downpayment? we can get a HELOC on this house for you!"

"No, We're good. Thanks" -smh

needless to say, Bank of Ma&Pa did not make much money on their clients all these years.

+1 for the Bank of Mom from me.
« Last Edit: September 11, 2013, 02:46:09 PM by Megatron »

Bristlingblackmustache

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Re: Bank of Mom
« Reply #24 on: September 12, 2013, 02:05:17 PM »
Megaton wins! Thanks for playing everyone!
And now a poem for your enjoyment!


The Autumn Wind is a pirate,

Blustering in from sea,

With a rollocking song, he sweeps along,

Swaggering boisterously.


His face is weather beaten.

He wears a hooded sash,

With a silver hat about his head,

And a bristling black mustache.


He growls as he storms the country,

A villain big and bold.

And the trees all shake and quiver and quake,

As he robs them of their gold.


The Autumn Wind is a raider,

Pillaging just for fun.

He'll knock you 'round and upside down,

And laugh when he's conquered and won.