Hi Mustachians, just created this account to ask for advice on how to help my in laws.
They're in massive debt and we'd like to find a way to help them get out of it asap. Just ignoring the problem and letting them deal with it themselves is not an option. The in laws are first generation immigrants and have definitely fallen prey to the "American Dream". They never had anything beyond an elementary education and are not savvy at all about how to handle debt. I don't think they fully understood the implications of taking out loans and the effect that interest would have on that. And by the time they had some inkling as to how much trouble they were in, their debt got so big that they felt overwhelmed and tried to ignore it. We just recently found out how deeply in debt they are and their debt consists of the following:
- $75,726 CC loan spread out between 9 credit cards
- $14,394 car loan (Mercedes Benz)
- $353,273 mortgage
They have the following monthly expenses:
- $197/month car insurance
- $140/month cell phone
- $166/month TV/internet/phone
- $125 electric
- $120 gas
- $137 HO insurance
- $300/month LIRR train ticket
- $2,303/month mortgage
- $340/month car loan
- minimum for all cc, about $1,625
On top of that, FIL owns his own store which is not doing so well. They're trying to sell it right now and are negotiating with a buyer to sell it for $43,000. They have the following debt in relation to the store:
- $70,000 bank loan
- 8 months of overdue rent at $2,800/month = $22,400
In terms of income, MIL brings home about $3,000/month, and we're not sure what FIL can bring in once the store has been sold. He will most likely only be able to get a min wage job which means after tax income of about $1,000-1,200/month. They live in Long Island right now but MIL's job is in NYC.
We have asked them to give us a list of the interest rates for all these loans so we can see what needs to be tackled first. We live a few states away from them so that makes helping them a little more difficult, but we definitely want to get them an appointment with a debt counselor or financial advisor.
Other steps we want them to take:
- Sell the Mercedes and buy a cheaper and more gas efficient car.
- Either sell the house or rent it out(would be best if they could rent it out - they bought it for $450,000 and the current market value is $350,000).
- If they're able to sell/rent the house, that would reduce a lot of monthly expenses - lower gas/electric, no need for LIRR monthly pass if they move to Queens, possibly no need for a car at all if they move to Queens.
Are there any other suggestions as to how we can help them? Should they seriously consider bankruptcy or is that something to be avoided at all costs? My husband and I have also considered the option of lending them some money, but we are also hesitant to do so because of the risks involved (we have about 90k in savings and stocks/investments that his parents don't know about and we don't want to tap into that unless absolutely necessary). We're both only 24 and while we have decent knowledge of how to handle personal finances, never really had to deal with debt like this before. We could really use the help of those older and/or wiser in this forum.
ETA: The store is owned under a LLC they created.
My in laws have always seemed like very frugal people which is why this revelation has been such a big shock to me. Up until my husband graduated from high school, they lived in a small 1 bedroom apartment in Queens. He always remembered them being pretty careful with money. Then when he went off to college, that's when my in laws bought the store (liquor store) and moved to LI, bought a house, etc. I'm not sure where exactly this whole problem started, but I think that when they bought the store they had dreams of grandeur and didn't expect the economy to fall so drastically. For the first couple of years business was good and they just did not prepare for a situation where the cash flow would decrease.
On top of that, my mil has a heart condition and had to get open heart surgery 3 years ago. She has an artificial valve that needs to be replaced every 15-20 years or so. We asked them if any of the debt was in relation to medical bills, but they said no. I find it very hard to believe that their health insurance is that good though especially since a surgery like that is not cheap.
I know everyone is concerned about whether or not they can change their behavior, but I truly believe they can. They've always been frugal up until the past few years and I believe they can get back to that frugality once they fully comprehend how massive their debt is. They are still in a bit of denial but are slowly waking up to it. My husband and I first just need to get all the info we can from them and show them how big the problem really is. Then we can get a debt counselor and discuss the possibility of bankruptcy...