Bad idea? Offering ds debt consolidation loan

[Mrs. Dinero]

Hi all, I know this goes against better judgement but ds, 23, will never get out with his current interest rates. $8,500 total over 2 years & 10% and we will have access to credit reports to ensure he’s not opening more or using existing cards. This is all cc debt. Plan on drafting up a loan document. This was my idea. We have the money. He hasn’t been spending any more although he can’t because he’s at his max with low credit score (can’t get more cards). His pmt to us would be the same as what he’s been paying to the cards. Thoughts?

[jerseygirl]

He might learn more and stay out of debt if he pays this off. If you ‘rescue’ him he will learn only that someone else not him will take care of him
Nope

[minnesotapaintlady]

I'm not sure what I'd do here, but I don't think it would be to directly loan money.  I'm pretty set against that when it comes to family.

How much does he make?  $8500 doesn't seem like a lot of debt to pay off.  Could you help in the budgeting department instead?  Figure out ways to reduce his expenses so more can go to the debt?  Can he move back home for awhile? 

Or maybe a secured loan with the bank?  This is what my parents did.  There was always a 30K CD of my mom's I could borrow against if I needed it when I was a teen/young adult.  The rate charged was 1% over what the CD was paying and had to be renewed every year when the CD matured and changed rates.  You could put up the $8500 in a CD and let the bank handle all the loan docs.  I realize it's the same effect on you with coughing up the $8500, but the dynamic is different when the borrower/lender relationship is between the bank and your son rather than you and your son.

[movingforward]

$8500 does not seem insurmountable to me. Is he working full-time? What is his situation?

I do understand the urge to help, but this could be a very valuable lesson for him. Also, I'm not really sure a 23 year old should have mommy and daddy looking over his shoulder making sure he is not opening more credit cards, etc.

[Mrs. Dinero]

Thank you all. I am going to help him make a plan. You’re all so right. He needs to learn. Mom & dad don’t need to be involved and he makes enough to get out of this.

[laterbloomer]

According to my math that is only payments of $425/mth. Not great, but should be doable. And really a cheap lesson in financial responsibility and decision making. I find lessons need to hurt a bit to take. Not in his long term interest to take away all the pain.

[Tiny]

Bankrate has an assortment of calculators that might help you quantify the length and cost of the debt repayment.

www.bankrate.com/finance/credit-cards/calculators/

The credit card payoff calculator (the last one in the above list) - says 8500 at 10 % interest can be paid off in 24 months with a monthly payment of $392.00


Depending on his job and long term plans - and if you want to cut him a deal - could you match is CC payments with money going to his Roth? Not sure how that would work... but if it will take him 2 or 3 years to get out from under this debt - at least he would not be falling behind in the "savings department" as he works thru the tough part of building a financial foundation...

[haapai]

I'd be wary.  Your child packed on this debt very quickly and only stopped when maxed out.  To turn this ship around he needs to cut both the excess spending that got him into this mess (around $350 a month) and make payments ($400-$450 a month).  The sum of those two is a lot more than most young folks can come up with without making big, big changes like dramatically reducing their shelter expenses or getting a second job. 

The records of how he accumulated this debt and what kind of payments he has been making might help you see this but asking for them would probably damage your relationship.  I'm also finding it hard to believe that he's been paying about $400 a month on these cards.  Even with 24% APR interest rates, he'd probably only be making payments of about 3% of the balances each month. 

Does your child have any paused student loans? 

ETA: Sometimes my reading comprehension is pretty lousy.  My assertion that your child packed on this debt over a two year period is unsupported by anything in your posts.   I don't know when he got his first one.  If you divide $8500 by five years (60 months) you get a much smaller amount of debt being added per month (around $140). 

 

[souldoubt]

I see the OP already responded but I agree with helping him make a plan to pay the debt off and not loaning him money.  Times have changed but I used to play the revolving 0% CC offers to pay balances off before interest kicked in.  I'm guessing 0% balance transfer offers are gone these days not that the OP's son would qualify.  That said if sees how he can commit x dollars a month to paying off his debt once that's done there's no reason he can't shift gears and put that amount or something close to into savings, his 401K, Roth IRA and/or taxable account.  Biggest thing on his side is time given that he's 23.

[busymom]

I still receive credit card offers in the mail for zero percent interest, which is one of the tools DH & I used back when we were trying to get out of debt.


I agree with others that instead of a loan, help him navigate the path out of debt.  The lesson will stick longer if he has to do the hard work.  

[CCL]

Has he shared how he ran up the cards? I'm guessing it wasn't medical bills or gas to get to work. If he's like the 20-somethings I know, he spends a lot on eating out/entertainment.

I've offered to help my kids with creating budgets, but they aren't interested.

[thyme4change]

Can he get a job working at Starbucks for a single shift per week? He could likely double his payment if he worked Saturday and put that entire paycheck to the debt. (And by Starbucks - I mean any place that has jobs for a decent wage that might need an extra hand for one day per week.)