Author Topic: How and when to pay off loan to older family member...  (Read 3671 times)

bananagram

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How and when to pay off loan to older family member...
« on: April 29, 2015, 12:11:04 PM »
Here is the gist:

-I'm 25
-I owe my 65 year old parents 7k
-They are not charging me interest, and say they don't need the money now and have no timeline for me paying them back. They're retiring soon, and are pretty set.
-I could afford to pay all of this back by the end of the year if I put my mind to it.

My question is: Given the fact that I'm so much younger and have time/compound interest on my side, how should I go about paying this off? I'm just getting started financially, and everything I read about compound interest makes me feel like the 7k could do a lot more for me if I invest it now and pay my parents back later (like 5-10 years). However they're my parents, and I don't want them to feel like I'm taking advantage of their generosity. Thoughts?

dragoncar

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Re: How and when to pay off loan to older family member...
« Reply #1 on: April 29, 2015, 12:16:23 PM »
If it Was me, I'd pay them back ASAP.  But only if they actually expect it.  If it was really a gift in disguise, I wouldn't sweat it. Delaying everything one year to put your house in order is not bad at al and will help you test your frugality muscles.

Maybe have a conversation with them.  Tell them you would like to work out a reasonable payment plan and see what they propose.

Sibley

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Re: How and when to pay off loan to older family member...
« Reply #2 on: April 29, 2015, 12:21:55 PM »
Start making regular payments, enough to pay it off in a couple of years. They know you're serious about repaying them, you have cash to save.

begood

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Re: How and when to pay off loan to older family member...
« Reply #3 on: April 29, 2015, 12:55:02 PM »
Set up an automatic payment to them - then they know you're serious about paying them back AND they'll be able to predict the extra income since it will be a regular amount each month.

The Money Monk

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Re: How and when to pay off loan to older family member...
« Reply #4 on: April 29, 2015, 01:25:15 PM »
Start making regular payments, enough to pay it off in a couple of years. They know you're serious about repaying them, you have cash to save.

Beat me to it.  This is my recommendation as well.

Squirrels_Away

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Re: How and when to pay off loan to older family member...
« Reply #5 on: April 29, 2015, 01:33:26 PM »
I agree with the others.  Pay it off.  I think family/friend debt is often taken too lightly.  Imagine the compound interest _they_ are missing out on because they lent you money.  Would you lend money out on those terms (or be okay with someone saying they would pay you back but never making the effort - then finding out they are investing instead...).

I am particularly sensitive to these types of things  because my brother has done this to my parents.  They are in their late 60's as well and it is interest they are losing out on that they do need.  And it's been probably about 10 years.  My parents weren't too concerned the first few years, but when it drags on like this, and the person you lent money to takes a vacation, buys a new car or is bragging about their investments, you start getting bitter pretty quickly.  Outside of credit card debt with a high interest rate, I consider this to be the next type of debt that should always be paid off ASAP.  Don't assume its a gift - and just because someone says "take your time", they are most likely assuming it is because you can't pay it off...

Duchess of Stratosphear

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Re: How and when to pay off loan to older family member...
« Reply #6 on: April 29, 2015, 01:42:36 PM »
I'm in kind of the same boat--I owe my mom quite a bit of cash that I could pay back--if I didn't save anything for retirement for the next few years. I've paid back a little and I make a nominal little "interest" payment every month (it's totally not enough). I feel guilty about it, but in a way I feel like she doesn't expect me to pay it back. She's better off than I will ever be and I have cost her much less than my brother has, so I sort of rationalize it like that. But, if I got a big windfall, that is the first thing I'd do--write her a check. And if I thought she really needed it, I'd try to pay it off as quickly as possible. But I feel like it would be really irresponsible to just stop saving for my retirement. Ugh. It sucks. Advice--just don't borrow money from relatives. Just don't.

tarheeldan

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Re: How and when to pay off loan to older family member...
« Reply #7 on: April 29, 2015, 01:48:53 PM »
I was in a similar position, but in my case one parent suggested I didn't need to pay them back. The advice I was given was to have an honest conversation with them about it.

While I was concentrating on just "I need to pay this back," I had been forgetting that they might want to express their generosity. In the end we came to a compromise where I paid back a large chunk ($5k) but not the full balance. They got to be generous and I got to take care of my side.

This immediately changed the dynamic between me and my father, for the better.

I suggest you have a good talk with them about it, and be willing to start a payment plan immediately.

Catbert

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Re: How and when to pay off loan to older family member...
« Reply #8 on: April 29, 2015, 02:38:58 PM »
I speak as a member of your parents generation...pay them back!  Don't kick the can 5-10 years down the road.  If you defer paying them they may not say anything but they will lose some respect for you. Every time they see you go on vacation (even if its free from CC points) or seem to spend money on non-necessities they will think about the money you owe them. 

I'd need to know a lot more about your situation and theirs to have a strong opinion on whether to save up  and pay off ASAP or go the steady payments over a couple of years.   

Jeremy E.

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Re: How and when to pay off loan to older family member...
« Reply #9 on: April 29, 2015, 02:43:52 PM »
+1 to automatic payment plan,
If I were in your situation I would pay them back with 3% interest, to pay it off in 3 years with 3% interest you would be paying $210/month, then if you are still able to save any after making that payment to them, you can do so.

jooles

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Re: How and when to pay off loan to older family member...
« Reply #10 on: April 29, 2015, 05:31:04 PM »
Pay them back as quickly as possible, but organize your life and your finances in such a way that you will never have to ask them for $$ again.  Meaning, don't make paying them back with lightning speed such a priority that your financial house is in disarray and you risk needing to ask for another loan.