Sibling Drowning in Debt: How to Help

[marble_faun]

Hello Mustachians,

I am deeply worried about my sibling, who I will call "Corey."

To begin: Corey has student loan debt in the six figures.

After school Corey was under-employed for a while and started putting bills and groceries on credit cards, making minimum monthly payments.

Finally Corey landed a full-time office job. It doesn't pay a huge amount, but there is hope of getting promoted.

Once employed, Corey bought a car with financing, adding another loan to the heap.

To attack the debt, Corey started selling off possessions and took a side-job after hours.  Corey lives in a cheap apartment seems to avoid extraneous purchases.

With all this, things were stable on a day-to-day basis -- the massive debt was there but Corey was able to pay the bills each month.

However, Corey has no emergency fund, and any time a new expense crops up, it's a catastrophe, which Corey deals with by going into more debt. "Hair on fire" seems to have become a normal sensation.

I'm seeing my sibling, who is one of the people I care most about in the world, sink down, and it's awful. I am going to give Corey some money. Other relatives are helping too. (We weren't aware of the full extent of the problems until recently, otherwise we would have intervened earlier.) We won't be able to give Corey a clean slate all at once, but we can perhaps pitch in enough to take the edge off.

There's also an emotional aspect to this: Corey's growing sense of hopelessness and fatalism. That's part of what scares me.

I think the total debts are roughly equivalent to four times' Corey's annual salary, which to me seems like a surmountable obstacle but to Corey feels like a life of eternal penury, especially as interest racks up.

What would you all recommend to someone in Corey's position?

Would especially appreciate advice from those who got out of major debt and then stayed out of it. What had to shift to get you to make long-term changes?

It would be also good to hear from others who have helped their relatives escape the debt cycle.

Thank you all.

[Vindicated]

While not nearly as severe, my Brother has also amassed a large amount of debt, and has shown no signs of slowing down.  His current monthly Verizon bill is $450, due to devices on payments.  I also used to play pay-to-win phone games with him, and he was always, ALWAYS, the "winner".  He spends hundreds of dollars a month on those games still.

Anyway, not to high-jack, this is related.

I asked him about his plan, how much he's saving (nothing), etc., and shared what I've been doing.  The talk turned into over an hour of discussing finances and spending, and specifically NOT spending on phone games.  I don't think we've ever spoken for over an hour on the phone before, in our entire lives.  So, I hope that's a good sign that he was interested.  I even sent him a MMM article, and offered to make a plan with him.

My advice is to just talk to your sibling.  Be serious with them, because it is very serious.  Help Corey make a plan, and if you offer money, make sure the money goes towards the highest interest debt.  Some people here say not to push too hard because you don't want to hurt a relationship, but if it's as dire as it sounds, Corey will appreciate it in the long run.

[Linea_Norway]

Here in Norway they have a tv program "luxury trap". There they first make it very visible for the person what they do wrong, like making a big monthly spending budget on a whiteboard and showing the red banknotes for the spending on credit. This tends to open people's eyes. What they also do is making an alternative budget, showing a way out of the misery. Often this is a 5 year plan to pay off all debt. People seem happier when they have a plan. Credit cards are always cut. Sometimes people get psychological help with their spending habits.

I think helping your sibling by giving money won't help. Corey will keep the same bad habits. I think you should have a good conversation, telling you are worried, and telling you want to help finding a way out of it. But than the sibling should let you help.

[BlueHouse]

It sounds like Corey is on the right track but just can't get out from under the crushing student loan debt.  From the other comments you made, it sounds as if he generally lives within his means, sees the problem, and is actively trying to reverse it through side gigs.  Can you give us an idea of corey's take home pay and what percent goes to student loan repayment? 

How much of his total debt is student loan?

Typically when someone owes more than 1X their annual salary, they are in the ballpark for bankruptcy.  But not with Student Loans.    So if a significant portion of his debt is consumer debt, then bankruptcy may be an option.

I watched my brother go through a bankruptcy.  My advice is this:  Help him get a handle on exactly what he owes and to whom.  Don't give money until you know it will help the situation.  With my brother, he was in a situation that wouldn't end without going bankrupt, so that was when the whole family had to cut him off.  We told him straight up that we would help him rebuild his life, but at that time, he was still in the hole and digging in deeper.  None of us wanted to put our money toward a debt that wouldn't be repaid anyway. 

It is working out now.   After he declared bankruptcy and had a plan, each of us could afford to be generous to help him reestablish himself or to cover costs to rebuild because we hadn't just thrown money into the pit of despair. 

It's hard, but sounds like you are on the right track.

[Catbert]

It sounds like Corey is on the right track but just can't get out from under the crushing student loan debt.  From the other comments you made, it sounds as if he generally lives within his means, sees the problem, and is actively trying to reverse it through side gigs.  Can you give us an idea of corey's take home pay and what percent goes to student loan repayment? 

How much of his total debt is student loan?

Typically when someone owes more than 1X their annual salary, they are in the ballpark for bankruptcy.  But not with Student Loans.    So if a significant portion of his debt is consumer debt, then bankruptcy may be an option.

I watched my brother go through a bankruptcy.  My advice is this:  Help him get a handle on exactly what he owes and to whom.  Don't give money until you know it will help the situation.  With my brother, he was in a situation that wouldn't end without going bankrupt, so that was when the whole family had to cut him off.  We told him straight up that we would help him rebuild his life, but at that time, he was still in the hole and digging in deeper.  None of us wanted to put our money toward a debt that wouldn't be repaid anyway. 

It is working out now.   After he declared bankruptcy and had a plan, each of us could afford to be generous to help him reestablish himself or to cover costs to rebuild because we hadn't just thrown money into the pit of despair. 

It's hard, but sounds like you are on the right track.

This.  Don't give any money until someone had helped him figure out whether bankruptcy is the best option.  I hope his SL isn't the biggest portion of the 4x salary debt. 

[2Birds1Stone]

I wish you and your family the very best.

Hopefully helping doesn't turn into enabling. He really needs to consolidate the debt and get a low interest rate.....followed by a repayment plan. With 6 figure student loan debt, does he have a marketable degree and skills?

[marble_faun]

Thank you all!

As suggested, I would like figure out a plan with Corey: visit in person, go through all income and expenses in a non-judgmental way, etc. It would be great to create a timeline: "If you do X, Y, and Z, this debt will be paid off by 22xx! And we'll chip in some to get you started." That could help restore Corey's sense of hope for the future.

When we do give, we will ask that the money go directly to whatever debt has the highest interest. I don't want to come off as controlling or like my help comes with tons of strings attached, but that request seems reasonable.

I am not sure exactly what Corey has to pay each month, but I do know that the student loans total more than $100,000. The consumer debts are just a fraction of that.  So, yes, student loans are at the heart of this and cannot be discharged in bankruptcy.

One of our wealthier relatives has agreed to help Corey tackle the student loans in a significant way over the long term. So after seeing what's what, I might turn my attention to helping with the consumer debt.

As for the degree itself -- I don't want to get into specifics, but it's a degree that seems like it *should* bring in a higher income. Corey's current job is in the lower-paid side of the career track (a bit like if a someone with a JD decided to work in legal aid). Corey has likely tried to get a better-paying job, but it may be easier said than done. (Another thing to discuss.)

I know what y'all mean about enabling. I am worried about damaging my relationship with my sibling somehow through this. But I can't sit back and watch as someone I love accepts a state of lifelong debt peonage.

On my end, I am going to try and avoid giving off any sense of authoritarianism or moral judgment. I don't want to be "owed" a single thing. I just want to help kill this debt so Corey can move forward in life and get some joy back.

[Bicycle_B]

Tricky stuff. 

I'm a believer that in most such cases, encouragement and knowledge are better than money because of the he-doesn't-learn-if-you-pay-it-for-him thing.  But I have a friend in a similar situation who then had a glitch (a car wreck), concluded paying the debt was impossible, gave up and didn't work for two years. 

By contrast, another friend (JD, big debt, nice pay) lost his good job, then scrambled (50k-60k, maybe) for 5 or 6 years.  Early in the scramble period, he started going to something called Debtors Anonymous.  Like it sounds, a 12 step program that identifies the problem as using unsecured debt as a substitute for tough financial decisions. 

The group's body of knowledge on how debt feels and the psychology of facing the financial music is remarkable.  JD Friend stopped adding debt, learned to live on less, negotiated with creditors, became consistent in both his financial conduct and his work ethic.  He paid off half the debt in 5 years, maybe 70k, then got a higher paying job thanks to his gradually improved work attitude.  At that point he paid off the debt in another year so.  Today, half a decade later, he owns two properties, has substantial equity with prudent reserves of financial assets, and is continues behaving responsibly.

[chasesfish]

Can Corey move in with you?  That would allow more of her money to be put towards debt and probably cut down on food some and you might get some help around the house.

If I were going to "gift" money, I'd directly pay down the student loan debt.  You can't bankrupt from that with a clean start, so I think that's the 30 year noose on someone's head.   How the government sponsors that level of student loan debt is beyond me.

[Miss Piggy]

How the government sponsors that level of student loan debt is beyond me.

Agreed.

Corey sounds like the exact target market/audience for Dave Ramsey's methods and school of thought. I know Dave isn't the right cup of tea for many mustachians, but he's perfect for someone like Corey who is chipping away at an overwhelming situation.

[BTDretire]

I think before I gave any money I'd work very hard at convincing him that getting out of debt is possible, but he would need to change his thinking about spending.
One: find out all his expenses, and bluntly tell him what he doesn't need.
Two: make a plan on how to eliminate those expense items.
Three: all those that want to give him money with can offer to pay an amount equal to the amount he has paid on his student loans, or some %.
   Otherwise you are all just subsidizing his next new car or something you would want to subsidize.
 I don't know though, he could just build up debt on CC you don't know about.
It is difficult to help those that won't stop increasing their own problems.

[little_brown_dog]

I had massive amounts of student loan debt too – 100k at almost a 7% interest rate and a 35k/yr job (ouch). When I was down to around 90k, I also had to finance a used car because I didn’t have enough to buy a decent one in reliable condition. It was rough, but I was extremely lucky – I had my husband (fiancé at the time) and we tackled it together with our 2 incomes in record time. Unfortunately your brother isn’t in the same position so he is going to have to do this on his own. That means it will be harder and slower, but it is still absolutely do-able.

My thoughts…

1.   Make sure he is on IBR (income based repayment) if available for his student loans – People with loan amounts this high usually need the lower payments and increased flexibility IBR provides. Traditional payments on loan amounts >100k are often massive, 600+ dollars a month and eat up all available cash the person has. IBR will give him breathing room and will free up extra cash for an efund and to pay down cc debt. He can always tackle these loans after he gets financially stable, but right now he needs to stem the monthly bleeding.

2.   See if he will open up and let you help him plan his strategy – High interest debts first, yada yada yada

3.   The car – You mentioned he financed a car....is it the type of situation where he can trade it in or sell it and get a different vehicle with better loan terms and a lower payment? Or even better, can he sell/trade and find a way to buy a cheap car outright? Either way, try to see if there is some way to free up some of that car payment so it can go to the debt/efund.

4.   On giving him money – Your generosity could help or it could be a complete waste of time…it all depends on how it is used. As the giver, you have the right to tell him what you want it to be used for, but after that, you have to let go and hope he follows your advice. My personal vote is to give him the money as a starter efund, or if a cheap used car is a possibility, help pay for that to avoid financing or a large payment. Alternatively, you can wait to offer him money and simply tell him you really want him to call you the next time he has an emergency expense come up, because maybe you can help. When that time comes, give him the money for that expense specifically to prevent him from piling on more debt.

5.   Attitude – I completely understand why your brother is fatalistic. Debt loads this high are devastating because they trap you in a vicious circle. To get out you need to free up cash flow (to pay off the debt faster) but you have no extra cash because all the debts are already eating it up every month. It is suffocating and really feels like you are completely trapped. The key is, if you can show him out to free up cash flow and how it will build on itself as the debts fall away one by one, that should take care of the fatalism and put him back in control. The key for me was understanding that the first few months and years were going to be particularly hellish and that I needed to prepare myself for feeling like all my efforts weren't doing any good. It was HORRIBLE throwing everything I had at that debt, and making sacrifices to do it, and barely seeing it move an inch - month after month. It can easily discourage the toughest people and make them throw in the towel. But the tide will turn when that first debt disappears...because it will feel worth it, and even better, the next one will fall even faster thanks to the extra money freed up from eliminating that first obligation. Paying off debt can almost become addicting in its own way. Hopefully if he has some debts that can be wiped out relatively quickly that will provide much needed motivation and reward to keep going for the long haul. Watching your debts disappear is one of the best feelings...

[2Birds1Stone]

4.   On giving him money – Your generosity could help or it could be a complete waste of time…it all depends on how it is used. As the giver, you have the right to tell him what you want it to be used for, but after that, you have to let go and hope he follows your advice. My personal vote is to give him the money as a starter efund, or if a cheap used car is a possibility, help pay for that to avoid financing or a large payment. Alternatively, you can wait to offer him money and simply tell him you really want him to call you the next time he has an emergency expense come up, because maybe you can help. When that time comes, give him the money for that expense specifically to prevent him from piling on more debt.

Great advice!

[Playing with Fire UK]

Would especially appreciate advice from those who got out of major debt and then stayed out of it. What had to shift to get you to make long-term changes?

It would be also good to hear from others who have helped their relatives escape the debt cycle.

I'm both!

I got out of £183k of debt when my income was £34k; a 5.4x multiple. And that didn't even include my student loans (different system over here). It...was...difficult, and took a long time, and there were times I couldn't be bothered with it any more.

This is what helped:

I made calculators, with charts, that showed the difference that every payment made. (There is a good template at vertex42). From this I calculated how much each pound that I spend cost me. MMM has an example on the Newsflash, Debt Emergency post about a chocolate bar. Basically, if I put this £10 to debt, it saves me paying ~£16 when interest is included. I would only buy something for £10 if I needed it enough to pay £16 for it.

I draw a giant sheet that visually showed the debt. It had 10,000 squares on it and each was 'worth' £18.30, they were colour-coded for which debt they were. I've seen people do arty debt pictures but it isn't my scene. For every payment and over-payment I got to cross off the squares. When I finished a debt I got to cross off all the extra squares that represented the interest I wouldn't have to pay. There were a lot of squares, but there are a lot of things I could do to save or make £18.30.

The fatalism is hard, you've done well to identify it accurately because it is so often mis-read as laziness or complaining. I was really lucky that I got a pay rise and had some luck so it cut my journey shorter. I think visualising the shrinking debt helped.

=====================================

My in laws have had problems with debt for as long as I've known them. They seem in a slightly different position to your sibling (they want to get out of debt but not enough to buy non-luxury cat food), and they are much more entrenched in their ways.

Things that helped:
- They don't really understand interest. They know percentages as a mathematical thing, but even if they did have money to pay more than the minimum, they prefer to put it on to the biggest monthly payment rather than the one charging 59% interest. That is not a typo. They will ask "what is the monthly payment?" not about the interest rate or duration or price. They see no difference between paying £10 per month until the end of time at 100% interest and for 10 months at 0% interest, it is just £10/month to them. I made them a list of the order they should pay the debts off and colour-coded them (red for high interest), for a while, they would talk about 'nearly finished the red payments'.

- We helped them with the type of things that are cheaper when you are rich - we bought them bulk groceries that were a lot cheaper than the small bags they bought. We paid for the house insurance for one year, so that they could save up the monthly payments and pay in full the next year. The groceries worked pretty well, the insurance not so much (they raided the savings account part way though and never replenished it).

Things that didn't:
- We gave them a monthly cash gift for a year or so when they had a problem paying the minimums (the mortgage went up). They increased their spending and became dependent on the extra cash, so that when we started to talk about reducing it, we were the bad guys. [We'd always spoken about it being temporary, initially for six months, until they could pick up another shift, we didn't know at the time that they'd got the extra shift but had spent it away.]

 - There were times when I cared about their situation more than they did. I'd reduce our supermarket spending or meals out to compensate for the money they were giving them and they'd be buying nicer food than me, and throwing half of it away. Not cool.

- They got my SO to join them on their mortgage years ago, this has been an unmitigated disaster, the house is in negative equity (underwater) and SO is forever financially linked to this sinking ship. They wanted us to cosign a loan for them. Hell no. They genuinely don't see what the problem is as they intend to pay the loan.

- A couple of times they'd call and ask for emergency money, and we'd send it over asap. Massive error on my part. They got to thinking that we are stinking rich and have all this money sitting around waiting for them to spend. Now, although we help them, we say that we need to check the account and check what bills are due first. We also tell them that the money has 'come' from somewhere. Like I've got an advance from work or that I'll return something I've bought and buy it next month. It is a language that they understand.

If I was doing it again then I'd offer a loan at 0% to pay off one high interest loan or card, and a set amount for an emergency fund, with guidance on how to use it and an offer of more guidance if it was asked for and I'd walk away. If they asked for more I'd say that I couldn't afford it due to the loan I'd already made, and I wouldn't feel bad about it at all. I cannot change people, I must not care about something more than someone I am trying to help.

[BlueHouse]

The fatalism is hard, you've done well to identify it accurately because it is so often mis-read as laziness or complaining. I was really lucky that I got a pay rise and had some luck so it cut my journey shorter. I think visualising the shrinking debt helped.

I agree with this. 

About 10 years ago I helped my mother out of a debt situation when she was facing a forced retirement long before she was financially prepared.  She had a very hard time coming clean with me about everything she owed, in part because she's an adult, and it's difficult to accept financial advice and help from a child, and also because she didn't know how much debt she was in.  Her overwhelming fear paralyzed her so she wouldn't add up all the numbers or even have them available all in one place.  She really had to "submit" and relinquish all control over all of her accounts to me before I started to see the real picture.  And that took a few months to find everything.  Without her willingness to trust me 100%, we would not have succeeded. 

I did the following: 
1. Closed all "store" credit card accounts and kept only MC, Visa, Amex.  (we were not worried about credit score)
2. Used one credit/debit card for daily purchases.  I encouraged cash only, but that didn't fly with mom.
3.  Transferred all credit balances to one or two no-interest credit cards (and set reminders for myself to transfer again in 6 months, etc)
3.  Set up auto payments on all monthly bills and reviewed the auto pay amounts together.  Got buy-in from Mom.  She accepted it.
4.  Set up auto-download of all credit card purchases into Quicken and I monitored every purchase.  (And I called and asked about purchases)
5.  Created a very simple chart to show with the paydown amounts applied to the balances and how long before "Financial Freedom". 

Result:  After a 3 months, when I sent Mom the 3rd iteration of the paydown graph, she called me and said she thought she could apply another $1000/month toward the paydown.  I was astounded that she could so easily find another $1000/month after she had fought so hard to retain her spending margin.  I think it boiled down to control and once she started feeling more in control, she started to feel empowered.  She paid everything off far in advance of my initial estimate and more than 10 years later, has never gone back into debt.  She's not perfect and she still wastes a shitload of money, but it's her money and that's the point.  I'm just thrilled that she can pay her own bills!   

What didn't work and what did:
1.  Respect - I had to be very conscious of not treating her like an imbecile.  She's an adult, she has overcome many obstacles in her life, and this is one area that she didn't succeed at.  Make sure you see the whole person and not just one aspect of Corey's life. 
2.  Complexity (talk of snowball, transfers, interest rates, etc) did not work.  Mom was absolutely overwhelmed with fear.  She could no longer use reason or logic because the fear overtook everything else.  A simple graph with ONE line on it had an effect, but even that took a few months to sink in. 
3.  Control -- The things that she really fought me on and wouldn't agree to seemed to all boil down to control.  Just remember to treat Corey like an adult and let him/her decide what the paydown amount is.  If Corey wants to be in debt for 10 years or even 20 years, then that's his decision and it has to be respected.  You can hope that, like my mom, he sees the light and starts to see hope and increases the paydown rate. 
4.  Remember that what works for you may not work for everyone.  For me, going all-cash can "shake me up" and "reset" my habits and I really really wanted my mom to do the same thing by giving up any "Plastic payment" that had worked for me.  She wasn't having it and if I had forced it, we would have failed. 
5.  Reminders and nudges.  When I monitored my mom's spending, I downloaded her CC purchases every day and when i saw anything I would call her in the middle of the day and ask her about it.  I remember asking her one day what she bought at a clothing store the previous day.  She couldn't remember.  She balked and said "it was only $30"!   She answered that about clothing, groceries, just about everything that wasn't a fixed cost.  I kept having to say to her "mom, it's your money and you can spend it however you want, but if you cannot remember one day later what you bought, then you probably didn't need it or even want it."  This line of questioning was very difficult and I almost lost her a few times (she almost gave up on me and quit) because of it.  I think it's a good lesson, but it made Mom feel like I was treating her like a child.  So approach this one very carefully.  Don't ruin the outcome because you think a lesson needs to be learned. 
6.  For my mom, it was important that she pay this debt herself.  My sister and I had bailed her out of a similar amount of debt four years earlier by simply paying it off.  We were so upset to learn that she had gotten back into the hole. So this time we concentrated on Mom paying it off and the results stuck.  For Corey, if you want to help pay some of the debt down, I would work out some goals and offer some percent of "matching funds" at a 6 month mark and a 1 year mark.  That might be motivating.  It might also be patronizing.  Totally depends.  Ask Corey.   

Good luck!

[marble_faun]

Thank you all so much -- I really value the perspectives here, especially from those who have been through something similar.

My entire extended family is mobilizing around this now. There are many differences in opinion -- some want Corey to sink or swim without major assistance (to learn to fend alone), others want the wealthier relatives to pay all the debt off immediately.

I find myself in the middle: I want to help stanch the worst bleeding while helping Corey develop some sort of pay-off timeline so that the end will be in sight, even if it's years in the future.

Corey has not ever been a needy or consumeristic person and did not ask for help until desperate and utterly overwhelmed. Of course, people can change and surprise you, but I am hopeful that once the ship is righted, it will stay afloat.  (If we all help, and in a few years there's another crash, I will think differently. But that's not my expectation.)

I looked a little into what would bankruptcy would mean -- for now I probably won't suggest it, since the dischargeable debts I know of aren't enormous (though of course they seem big to Corey). If the student loans could be erased through the process, I would think differently.

Thanks also for the advice from various folks on how to talk to someone in Corey's position. I don't want to become a patronizing parental figure, telling Corey how to live. At the same time, I need to know the money we give is being applied in the most productive way, and that there's some kind of organized plan in place. I'll have to consider how to balance all of that. Ultimately this process does need to be driven by Corey, not by others circling the situation who "know best."

Also thanks for the practical tips -- will look into vertex42, etc.! 

Again, I truly appreciate input from the forum. I feel sick with worry about this, and it gives me hope to see others who have paid off even larger debts.

[Linea_Norway]

I thought of some other things the financial people in the Luxury trap tv program do. That is calling around to get a good overview over the debts. In Norway you can ask for a credit check of yourself to see which companies you own money to. Debt can be sold from the original company to some incasso company. You should also call the community, the state and any other official instancies you might own something. (Instead of "you", read Corey.

A person in Norway can register himself to be not credit worthy. That way you won't be able to buy a new credit card or buy stuff on credit elsewhere.

[Paul der Krake]

My entire extended family is mobilizing around this now. There are many differences in opinion -- some want Corey to sink or swim without major assistance (to learn to fend alone), others want the wealthier relatives to pay all the debt off immediately.

Ha yes, the good old "this guy is in a position to help, let's have him do it".

[BigLou]

I would not "give him money". Remember the old adage, if you give a man a fish you feed him for a day, but if you teach him to fish you feed him for a lifetime. I would sit down with him, examine all his bills and spending patterns, and give him a good financial management education. The money habits he develops now will last him a lifetime, so he needs to develops those financial management skills now. In the long run I believe this would be much more valuable than his family bailing him out.

[Playing with Fire UK]

Result:  After a 3 months, when I sent Mom the 3rd iteration of the paydown graph, she called me and said she thought she could apply another $1000/month toward the paydown.  I was astounded that she could so easily find another $1000/month after she had fought so hard to retain her spending margin.  I think it boiled down to control and once she started feeling more in control, she started to feel empowered. She paid everything off far in advance of my initial estimate and more than 10 years later, has never gone back into debt.

This is so true. Control or choice is what makes an MMM lifestyle easy and living in poverty or debt hard. If you haven't experienced it then it can seem counter-intuitive; but it is so difficult to make smart money decisions when your brain is consumed with debt panic.

Would your family be more comfortable making a loan to your sibling? If it is the interest rates (or minimum payments) that is causing them to struggle then making a low interest loan with affordable repayments could be a balance.

This may also be a more palatable solution for Corey; I would feel pretty shit if at every family event I was surrounded by the people who bailed me out. I'd feel awkward if I was paying them back, but feel pretty good once it was settled.

Couple of caveats:
The family members making the loan need to be willing to give the money if it came to it. No-one should lend money they can't afford to lose.
The family members making the loan need to understand that at some point, the lender will see the borrower spending on something that they disapprove of, and they need to make their peace with that or not make the loan.

From what you've said, I agree that Corey may well be able to turn this around. It sounds like the panic and fear is there but it is short term, not ingrained behaviour.

Best of luck.

[doublethinkmoney]

I think before I gave any money I'd work very hard at convincing him that getting out of debt is possible, but he would need to change his thinking about spending.
One: find out all his expenses, and bluntly tell him what he doesn't need.
Two: make a plan on how to eliminate those expense items.
Three: all those that want to give him money with can offer to pay an amount equal to the amount he has paid on his student loans, or some %.
   Otherwise you are all just subsidizing his next new car or something you would want to subsidize.
 I don't know though, he could just build up debt on CC you don't know about.
It is difficult to help those that won't stop increasing their own problems.

I second this idea. Offering to match what he is paying to directly to debt to help speed up the process up to a fixed amount you can afford is an excellent idea. It encourages him to be an active participant to getting out of debt which is key to make it a reality.

Also offering to help if emergencies come up is a good way to contribute in a positive way.

Of course, helping with budgeting etc.


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[Mgmny]

1.   Make sure he is on IBR (income based repayment) if available for his student loans – People with loan amounts this high usually need the lower payments and increased flexibility IBR provides. Traditional payments on loan amounts >100k are often massive, 600+ dollars a month and eat up all available cash the person has. IBR will give him breathing room and will free up extra cash for an efund and to pay down cc debt. He can always tackle these loans after he gets financially stable, but right now he needs to stem the monthly bleeding.

I don't think i agree with this... Presuming that he has at more or equal to the total payments coming in each month, IBR is a bad idea. He will just keep accruing more and more debt on those loans, which will make his situation worse.

He needs to sell his car, drop his cell phone, drop internet (go to the library, if he needs to), drop tv, sell his tvs, work a full time job, night job, and weekend job, drop his apartment and move in with parents or one of you siblings (who will graciously allow him a spare bedroom - depending on location, you could swap him around - or they have section 8 housing for him). He should not go out to eat, and should be eating the cheapest possible foods.

Basically, he needs to work somewhere between 70-80 hours a week, have 0 expenses (car, phone, internet), and pay his debt off asap. His hair is on fire. If you want to help him, give him food and shelter. I would not pay his debts off for fear of enabling him.

[Laura33]

My entire extended family is mobilizing around this now. There are many differences in opinion -- some want Corey to sink or swim without major assistance (to learn to fend alone), others want the wealthier relatives to pay all the debt off immediately.

I find myself in the middle: I want to help stanch the worst bleeding while helping Corey develop some sort of pay-off timeline so that the end will be in sight, even if it's years in the future.

OK, let me be a little contrarian here.  It sounds like your brother is surrounded by people who are willing to give/lend money in some way and have strong opinions on what he should do.  This in and of itself will very likely just add to the pressure and mental noise he is feeling -- if he is already overwhelmed by his debt, how is he going to be able to process 12 different opinions on how he should be given money and what he should do with it?  If he's already fatalistic, why wouldn't he immediately think, damn, there's no way I can satisfy everyone, so why try? 

You are his sister.  I think your primary job is to let him know that you have his back and have confidence in him to work through this.  Don't give him money -- that will change the power dynamic.  But also don't lecture, don't add to the noise -- don't be the 13th opinion adding to the confusion.  Be his sister.  Listen to what he thinks.  Let him talk through his feelings without judgment.  When he complains or is unsure of something, empathize and ask him what he thinks or what he plans to do about it?  That signals that you have faith in him as a competent adult to figure it out.  If he does ask for his advice, pick one simple thing, like paying off the highest-interest debt first, or a good way to cut costs. If he asks you to help him with his budget, take him up on that, but don't take it over -- e.g., "have you thought about" or "one thing that worked for me" instead of taking it over. 

Tl;dr:  Your brother has enough people telling him he requires fixing; your job is to help him believe he can do it. 

[COEE]

I don't have any advice that hadn't already been given.  Just be sure to watch for suicidal tendancies.  Especially at the beginning and around half way through.  It seems insurmountable and each day is hard at that point.  The only way that will clear the debt is death and it is an enticing option at that stage of the payoff.  He needs lots of love from his closest friends and family at that point.  Counseling is money well spent during this time if you ask me.

Good luck to both of you.

[StarBright]

I find myself in the middle: I want to help stanch the worst bleeding while helping Corey develop some sort of pay-off timeline so that the end will be in sight, even if it's years in the future.

Corey has not ever been a needy or consumeristic person and did not ask for help until desperate and utterly overwhelmed. Of course, people can change and surprise you, but I am hopeful that once the ship is righted, it will stay afloat.  (If we all help, and in a few years there's another crash, I will think differently. But that's not my expectation.)

What my parents and I did when my younger brother was in a high/unexpected debt situation (He had co-signed a bunch of loans for his fiancee, who then left him and skipped out on all payments) was that we each paid some of his utilities/expenses directly for him for a bit while he threw all of his money at his debt.

That way he was still making big payments every month, but we knew his essentials were being taken care of. He also offered to give my parents access to his bank account so that they could make sure he was making his payments. It made it easier on all of us to have that sort of access and since my brother offered it, I think it held some of the potential resentment at bay.

My DH and I paid his electric and water bills and my parents paid his mortgage and I think his cell phone for a while and we asked him to cut his cable package way down (neither my parents or DH and I pay for cable so it seemed unfair to pay for my brothers).

He started with somewhere around 60k of debt on a salary of like 28k. After about 8 months he told me he didn't need help anymore, and I think my parents stopped paying at around the year mark. This was over a decade ago and it seems to have worked out well.

[ShumateWB]

How about offering a matching contribution to debt payments he makes?  This would be similar to the 401k matches that employers make. This would get him/her to have some skin in the game - you could specify a floor payment at which the match would begin so that s/he does not get away with making too small a payment. You will need to get him to pay an amount that will start to meaningfully eat away at the principal, at which point your matching $$ would be paid directly to the lender on a monthly basis.

[Playing with Fire UK]

How about offering a matching contribution to debt payments he makes?  This would be similar to the 401k matches that employers make. This would get him/her to have some skin in the game - you could specify a floor payment at which the match would begin so that s/he does not get away with making too small a payment. You will need to get him to pay an amount that will start to meaningfully eat away at the principal, at which point your matching $$ would be paid directly to the lender on a monthly basis.

That's clever.

[marble_faun]

I just talked with Corey for a long while and got more details. Corey apparently now spends 100% of monthly income on rent, bills, and debt payments. So expenses like groceries still go on the credit card, contributing to the debt cycle.  Also, Corey is reluctant to sell the car, though it would free up significant cash.

I'm secretly hoping some heroic Mustachian lifestyle shift might click with Corey. In a light-hearted way, I told Corey about the van-dwelling "Walden on Wheels" guy, just as potential inspiration.

(RE: rent and living situation: I've always welcomed Corey to move in with us, as have our parents. But we live in different parts of the country. Now that Corey has a good job, it would be inadvisable to quit and move away.)

I told Corey that I would help a little with money. (I know, I know -- many have advised against this, but I wouldn't feel right not giving anything when I have so much and my sibling has less-than-nothing.) I'm trying to decide on a sum that I could afford to give, that would possibly help halt the vicious circle of groceries on credit cards, but that would leave Corey in charge of fixing the overall situation.

I want to avoid an ongoing carrot/stick relationship with my sibling. So a lump sum with minimal strings attached seems best from my perspective.

One of our relatives is flying out to have a "come to Jesus" talk with Corey. This relative is great with $$$, and has a lot of it, but has never been one for hand-outs. I'm optimistic that they can work together to come up with a budget plan and a timeline of sorts.

You are his sister.  I think your primary job is to let him know that you have his back and have confidence in him to work through this.  Don't give him money -- that will change the power dynamic.  But also don't lecture, don't add to the noise -- don't be the 13th opinion adding to the confusion.  Be his sister.  Listen to what he thinks.  Let him talk through his feelings without judgment.  When he complains or is unsure of something, empathize and ask him what he thinks or what he plans to do about it?  That signals that you have faith in him as a competent adult to figure it out.  If he does ask for his advice, pick one simple thing, like paying off the highest-interest debt first, or a good way to cut costs. If he asks you to help him with his budget, take him up on that, but don't take it over -- e.g., "have you thought about" or "one thing that worked for me" instead of taking it over. 

Tl;dr:  Your brother has enough people telling him he requires fixing; your job is to help him believe he can do it.

I really liked this. Thank you!  As mentioned above, I do want to give something, but I will refrain from nagging/lecturing/parenting/micro-managing and mostly just try to listen.

[Beach_Stache]

I would really look at all of Corey's finances together and see where he can reduce his expenses.  I feel for you, I do not have a sibling in debt but I have a brother in law that makes really poor financial choices.  When we were young (before we had kids) he had a child out of wedlock and was a single father (split custody) and was paying high child support and living in one of his father's rentals.  He was down in the dumps as well, and we gave some money each month to help him out.  His new truck was still much nicer than any of our cars (but he bought it before his child) and he still seemed to do all the things he wanted to do, but would still always complain about money.  One day he bought himself a new HDTV (years ago when they first came out) which probably set him back $700 or so, not quite sure...  After that our monthly payments stopped...  We were so pissed that we save so much money and gave him what amounted to over a thousand dollars just so he could live a higher lifestyle than us when these payments were supposed to be for his child.

You have love for your brother which I completely understand, but by giving him money you are just enabling him.  Go through his bills and see where you can cut it out, car, utilities, phone, cable, groceries, entertainment, etc.  Call the student loan financer and get the rate lower, call all his loans and get lower rates.  If he  has credit card debt transfer to a new credit card that will give you 0% financing for a year and then repeat each year to carry 0% interest until the cards are paid off, and then shred all the cards.

You will be doing much more help for him by trying to reduce unnecessary expenses, exposing him to blogs like this and getting him to realize how he needs to reduce expenses, increase savings and see the pleasure in the free/cheap things rather than spending money.

http://thisfrugalfather.blogspot.com/