Giving a Friend Financial Advice....need help

[JimFitz]

Good friends of ours are in financial trouble. They are selling their home because of huge debt. They have 75k in credit card debt and two mortgages on their home. They can afford the home payments but the other expenses are starting to add up and they feel their last option is to sell their home and start over. They have income in the upper 100k range but live in a very expensive neighborhood. He told me he is living paycheck to paycheck and has to wait to the second Friday just to get groceries and gas.

I say they keep the house and try to settle the debt but they want to move and rent for awhile and wipe the slate clean and start over in a less expensive neighborhood.

Thoughts?

 

[The Mystery Machine]

How old are they? Sounds like my parents.

Is the house in good shape or did they let it fall into disrepair?

I would NOT give them one bit of advice, unless you physically sat down and went over their bills and mortgages and any other debt they are hiding from.

What they tell you and what is reality are probably 2 seperate entities, trust me.

 

[JimFitz]

How old are they? Sounds like my parents.

Is the house in good shape or did they let it fall into disrepair?

I would NOT give them one once of advice, unless you physically sat down and went over their bills and mortgages and any other debt they are hiding from.

What they tell you and what is reality are probably 2 seperate entities, trust me.

The house is very nice...they've kept up with the Jones well. They are 36 and 38

You're right about not giving advice and I told them to seek a financial professional for advice but this guy is like a brother to me....I've known him since 3rd grade.

 

[PinkRhombus]

They need to sell the house. Recovering mentally and emotionally from what they're going through could take a while and sometimes it just takes removing yourself from every part of the situation that you can to get through it in the best way.

Did they ask you for your advice?

 

[JimFitz]

They need to sell the house. Recovering mentally and emotionally from what they're going through could take a while and sometimes it just takes removing yourself from every part of the situation that you can to get through it in the best way.

Did they ask you for your advice?

Yes, we had them over for dinner last night and talked about it for a few hours. I just think the house is the only asset they have at this point, why sell it to pay off CC's.

 

[JoiseyMom]

I agree with you. If their CC is their only debt, other then the mortgage, then I would consider bankruptcy. If they still want to sell the house, I can understand that...but I don't think I would use that to pay off the cc. Today NJ real estate is still kinda high. If they sell will they pay a rather high price for less house? It may pay for them to stay where they are.

 

[The Mystery Machine]

The house is very nice...they've kept up with the Jones well. They are 36 and 38

You're right about not giving advice and I told them to seek a financial professional for advice but this guy is like a brother to me....I've known him since 3rd grade.

That is good to hear they kept up with the house. How is the market in your area?

If they have a second mortgage my guess is that they may not be able to sell and cover the debt.

While selling may sound like a solution to them it may not be possible.

So, my advice for that is for them to take a good hard look at what the houses are selling for first.

 

[RitaE]

My first question would be how did the credit cards get run up?

If they are "keeping up" with the house payments but then letting other standard costs such as car repairs, back to school clothing, yearly vacations, Emergency Room bills, etc run up on the credit cards ... then no they probably can't afford the house. People run these up into the 10's of thousands of dollars over a couple of years ALL THE TIME.

If that is the case then they are making their house payments but letting their "everyday living" expenses run them into debt. I see that all the time.

If the house is sellable and downgrading to a smaller mortgage payment will give them room to pay off the credit cards, cover their other living expenses, take reasonable vacations, save for retirement etc etc etc

Then that is certainly a valid idea.

 

[RitaZ.]

Good friends of ours are in financial trouble. They are selling their home because of huge debt. They have 75k in credit card debt and two mortgages on their home. They can afford the home payments but the other expenses are starting to add up and they feel their last option is to sell their home and start over. They have income in the upper 100k range but live in a very expensive neighborhood. He told me he is living paycheck to paycheck and has to wait to the second Friday just to get groceries and gas.

I say they keep the house and try to settle the debt but they want to move and rent for awhile and wipe the slate clean and start over in a less expensive neighborhood.

Thoughts?

$75k in cc debt?

So, they asked for your advice, you gave them your opinion and they told you that they have a different plan in mind. Sounds like they already know what they want to do.

Maybe they asked for advice hoping that you would offer to help them with $? Maybe they just wanted to vent to a friend? Maybe they wanted you to validate their choices? Whatever the case may be, they should speak to someone that is knowledgeable about these problems. That person will get full disclosure of their financial mess and guide them through their options.

The last thing I'd want to do is get emotionally involved in a friend's financial problems. That's just me, though. Tell them to contact a professional to help them out. If I was in their situation, I'd contact an attorney about my options.

 

[Rafiki31]

They need to get proffesional advice. I think with the situation they have gotten themselves into, they need to seek outside help.

Be there for them to vent, but DO NOT give them any advice. When it comes to money, it always ends with emotion.

 

[Chicago526]

I agree with the poster that said if they can only afford the mortgages by putting food, gas, etc. on the CC's, then they really can't afford the house.

And again, as other posters said, if they have two loans on the house it's a good bet they owe more than it's worth, although they could have gotten lucky I guess.

If they can sell it for what they owe and move to a cheaper place, that may allow them to pay off the $75k debt in a reasonable amount of time. If they are really lucky, they get some money at closing and can pay off part or even all of the debt.

If they are underwater on the loan, they'd have to either come up with the difference at closing (unlikely) or get permision for a short sale and then probably have to pay back the difference to the bank. If they are really lucky and the bank forgives the difference, they'd owe taxes on the forgiven amount (still better than paying it back, but they'll need to save money for that tax bill next year). And all this assumes they can sell the home at any price, some places in this country you can't give homes away for free, the market is so bad.

One last option, if they truely CAN afford the mortgages and a very modest standard of living (in otherwords, get by without using their CC's each month), and it's only the past CC debt that is draging them down, then you could suggest credit counseling through the United Way (CCCS). They can get the interest down to almost nothing and get the CC's to take lower payments, freeing up some extra money each month. They'd have to close all their cards though, that's part of the agreement. Make sure they use CCCS via United Way, they are the ONLY credit counseling service that truely lives up to it's promisses and does what they claim.

 

[manning]

I agree with you. If their CC is their only debt, other then the mortgage, then I would consider bankruptcy. If they still want to sell the house, I can understand that...but I don't think I would use that to pay off the cc. Today NJ real estate is still kinda high. If they sell will they pay a rather high price for less house? It may pay for them to stay where they are.

You want to avoid bankruptcy at all cost !!!!

Sell the house and rent. They can get another one when they get out of their financial hole.

cut up the credit cards. They should not eat out, it's beans and rice, rice and beans.

If they don't have children get second jobs!!!

Above all sit down, make a budget and stick to it.

And no vacations!! That's a luxury and they are broke !!!

If at all possible look at this site. Dave Ramsey is good!!!!!

http://www.daveramsey.com/radio/home/


Also introduce them to the method of paying off debt using the snowball method.

http://financialplan.about.com/od/creditcarddebt/a/DebtSnowball.htm



I am debt free and have always been. It is great. One nice thing about it is if you are in a job you don't like you can tell the boss where to stick it and leave. You are not a slave to it because you owe someone !!! I've seen many miserable people because of it.



I like something my dad said to me once. "It doesn't pay trying to keep up with the jones. Why try, they won't notice you. They are too busy trying to keep up with the jones."