Helping my mother financially (CCs and housing)

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Topic Author
quasicoh
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Helping my mother financially (CCs and housing)

Post by quasicoh » Sat Aug 01, 2020 1:29 pm

I have a nuanced situation with my mother's finances, some of which need solving immediately, others are in the medium term.

Mother's current situation::
- 20k in CC debt from a bad divorce outcome
- Mortgage for a home in MCOL area with 40% paid off, monthly payment is 65% of her (take-home) income
- Daughter living at home until going to college next year (full scholarship)
- Very little savings/investment
- Strong pension through government job
- Strong job security

My current situation:
- 20k in Student Loan debt @ ~3% interest rate
- ~300k yearly salary
- full 401k contributions each year; current retirement fund around 60k
- ~70k cash-on-hand
- rent in H!COL area 3k/other monthly expenses 1k.
- no other debts
- no serious job stability risk

From above, it's easy to see that this CC debt is unsustainable especially given the high mortgage to income. I'm very worried that she's on a short road to bankruptcy, which in her case would cost her job(her job is related to the financial sector, and if she declares bankruptcy she'll lose her job)

I think that I want to pay off her CC debt, and then in a year, ask her to sell her house to downsize/repay this loan.

Some comments:
- I'm considering buying a multifamily home in her MCOL area for her to move into in a year. (the market has been quite good from my POV) I would get FHA afaict, and I would reduce my personal standard of living to save for a downpayment. (I would charge her like 60% of FMV on the rent)
- Her home is a new construction, so I expect FMV if she sells
- My mother and sister have been through a lot of trauma over the last two years, so I want to minimize asking my mother to move ASAP
- I feel ok giving my mother monthly spending money to help with her available income.
- I would like to remove my mother's access to credit to avoid her creating more debt in this year.

I'm very interested in your feedback on my analysis of the situation, my idea to buy a multifamily for her to move into, and generally any advice you have for helping family members in these types of situations.

I recognize that personal financial growth frequently does not large gifts to family as a strong investment strategy, but I feel morally obligated to help.

Freetime76
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Re: Helping my mother financially (CCs and housing)

Post by Freetime76 » Sat Aug 01, 2020 3:10 pm

A question: How long have you had your 300K income?

I am thinking there is a nice possibility for you to be a safety net for your mom (behind the scenes) without stepping in to “fix” everything. As in, keep some cash and shore up your own finances - which is why I’m asking how long you’ve had your fabulous income...you should be able to save a lot more than just maxing out the 401K. This would give you flexibility down the road, should a need arise. And...How wonderful for your sister’s scholarship!

IMHO, your mom will be a stronger woman as she heals from the divorce if she learns that she can, in fact, take care of herself. I’d hate for her to go from being dependent upon a spouse to dependent upon an adult child...presumably “forever”. You might feel like you’re helping, but it would be taking her independence away, in some respects. Yes, you could pay off the credit card debt...but then no habits are changed and it is not empowering her to manage her own affairs.

I’d offer to help *her* get a handle on her own finances ( keep it Simple, don’t go all crazy complicated right now, as you said, stability might be best), do a budget using her own income, make she she’s good on filing her taxes, and project out retirement ballpark times, if she’s thinking about that. If she’s not counting down to retirement yet, then just help take stock of her new financial status as a single lady. If she’ll have a pension and social security, that is a great start.

A few things she’ll want to consider are:
1) if she got any of her ex’s retirement or are they completely separate and severed by now?
2) is she ok on her day-to-day budget now? Are we sure the credit cards are getting paid off and not used to supplement lifestyle anymore?
3) has she updated her will, POA, and beneficiaries (POD/TOD) on all of her accounts?
4) Retirement planning, depending on how many years to go decides the urgency on this
5) Does she want to stay in the house (was it the marital home, for example, and/or is affordable and the right size/place she wants to be etc.)? The answer may wait until daughter graduates if all is stable right now.

P.S. Most of this is based on my experience with my mom, who was divorced while I was in college and staying with her.

bayview
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Re: Helping my mother financially (CCs and housing)

Post by bayview » Sun Aug 02, 2020 10:17 pm

quasicoh wrote:
Sat Aug 01, 2020 1:29 pm
I have a nuanced situation with my mother's finances, some of which need solving immediately, others are in the medium term...

I recognize that personal financial growth frequently does not large gifts to family as a strong investment strategy, but I feel morally obligated to help.
I’m glad that you are concerned and want to help. Has she asked for your input/ assistance?
- I would like to remove my mother's access to credit to avoid her creating more debt in this year.
My arm hairs literally stood up when I read this. Are you her son, or her father? I’d remove several levels of skin from one of my adult children if they tried to do this. How old are you again?
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

Topic Author
quasicoh
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Re: Helping my mother financially (CCs and housing)

Post by quasicoh » Sun Aug 02, 2020 10:56 pm

Freetime76 wrote:
Sat Aug 01, 2020 3:10 pm
A question: How long have you had your 300K income?

I am thinking there is a nice possibility for you to be a safety net for your mom (behind the scenes) without stepping in to “fix” everything. As in, keep some cash and shore up your own finances - which is why I’m asking how long you’ve had your fabulous income...you should be able to save a lot more than just maxing out the 401K. This would give you flexibility down the road, should a need arise. And...How wonderful for your sister’s scholarship!
I've been at this salary for close to 2 years, and been building towards this over the last 6(healthy salary progression). Over these 6 years I've been focused on paying of my own student loan debt(couple hundred k). I can definitely invest more in retirement than the 401k and that in the plans conditioned on some of these decisions.
Freetime76 wrote:
Sat Aug 01, 2020 3:10 pm
IMHO, your mom will be a stronger woman as she heals from the divorce if she learns that she can, in fact, take care of herself. I’d hate for her to go from being dependent upon a spouse to dependent upon an adult child...presumably “forever”. You might feel like you’re helping, but it would be taking her independence away, in some respects. Yes, you could pay off the credit card debt...but then no habits are changed and it is not empowering her to manage her own affairs.

I’d offer to help *her* get a handle on her own finances ( keep it Simple, don’t go all crazy complicated right now, as you said, stability might be best), do a budget using her own income, make she she’s good on filing her taxes, and project out retirement ballpark times, if she’s thinking about that. If she’s not counting down to retirement yet, then just help take stock of her new financial status as a single lady. If she’ll have a pension and social security, that is a great start.
I definitely agree, about wanting her to be more self-sufficient and believe enabling her to work through things is the best opportunity. I do think that in the short term, she's on a pretty quick road to a place of no return. She's about 9 years out from retirement, without much job flexibility. This is why I think paying off the credit cards is almost non-negotiable(despite the dismaying cost).
Freetime76 wrote:
Sat Aug 01, 2020 3:10 pm

A few things she’ll want to consider are:
1) if she got any of her ex’s retirement or are they completely separate and severed by now?
2) is she ok on her day-to-day budget now? Are we sure the credit cards are getting paid off and not used to supplement lifestyle anymore?
3) has she updated her will, POA, and beneficiaries (POD/TOD) on all of her accounts?
4) Retirement planning, depending on how many years to go decides the urgency on this
5) Does she want to stay in the house (was it the marital home, for example, and/or is affordable and the right size/place she wants to be etc.)? The answer may wait until daughter graduates if all is stable right now.

P.S. Most of this is based on my experience with my mom, who was divorced while I was in college and staying with her.
I think these are some great questions:
1) Nothing more from his retirement; the situation I described is where she stands after the divorce; he's providing about 400$/month in child support
2) This is exactly the issue. After the required bills, she doesn't have enough to buy food/gas, so she's doing minimum payments on the CCs and even adding debt to them very slowly.
3) Great question, I'll have to confirm
4) The pension is pretty locked in, and she has another 9 years before she can retire into it.
5) The house has no emotional attachment, but to keep my sister in her senior year, the thinking was to put off the sale for a year. It's definitely larger than she needs, and she's happy to downsize after my sister moves out.

Thanks so much for your questions and reply. I think you understand the situation well.

Minty
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Re: Helping my mother financially (CCs and housing)

Post by Minty » Sun Aug 02, 2020 11:21 pm

If it were my mother, and I were inclined to help, I would pay off the CCs as an outright gift, and help her with the process of refinancing the house to reduce the monthly outlay. That would keep her head above water and avoid bankruptcy, which sounds like it would be catastrophic in this case. Then maybe sit tight for a while.
Core Four w/ nominal bonds & TIPS. Refi Rampage: Purchase: 4.125% 30 -> R1 3% 20 -> R2 2.375% 15 -> R3 shopping

JBTX
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Re: Helping my mother financially (CCs and housing)

Post by JBTX » Sun Aug 02, 2020 11:31 pm

With your income and financial situation, I'd :

1 pay off the credit card Debt
2 help pay morgage
3 longer term evaluate more affordable living conditions

Is the credit card debt due to lack of control, or just not being able to ends meet?

Topic Author
quasicoh
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Re: Helping my mother financially (CCs and housing)

Post by quasicoh » Sun Aug 02, 2020 11:32 pm

Minty wrote:
Sun Aug 02, 2020 11:21 pm
If it were my mother, and I were inclined to help, I would pay off the CCs as an outright gift, and help her with the process of refinancing the house to reduce the monthly outlay. That would keep her head above water and avoid bankruptcy, which sounds like it would be catastrophic in this case. Then maybe sit tight for a while.
I think this is a reasonable approach as well. It'd definitely on my mind. To be very honest, I'm not sure how to effectively "help her with the process of refinancing the house" from my position.

rob65
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Re: Helping my mother financially (CCs and housing)

Post by rob65 » Sun Aug 02, 2020 11:48 pm

I would pay off the credit card debt.

I would want to let your sister finish her senior year of high school without moving, but the house isn’t sustainable long run. I would help with expenses for the next year if you can afford to. You could ask that this be a loan to be paid off when the house is sold.

If you buy a multi-family unit could your mother live in one unit and serve as your property manager in exchange for reduced rent? I personally would not want to be a landlord, but that’s just me. No idea how complicated this suggestion is from a tax perspective.

A key question is does she make enough to afford a two bedroom apartment or condo in a safe area? (I’m assuming your sister will still be home holidays and summers.) If so, then that might be the simplest option unless you just really want to invest in a multi-family unit. If not, then the whole problem is much more complicated.

Don’t ask her to give up her credit cards. Just don’t.

Minty
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Re: Helping my mother financially (CCs and housing)

Post by Minty » Mon Aug 03, 2020 12:23 am

quasicoh wrote:
Sun Aug 02, 2020 11:32 pm
Minty wrote:
Sun Aug 02, 2020 11:21 pm
If it were my mother, and I were inclined to help, I would pay off the CCs as an outright gift, and help her with the process of refinancing the house to reduce the monthly outlay. That would keep her head above water and avoid bankruptcy, which sounds like it would be catastrophic in this case. Then maybe sit tight for a while.
I think this is a reasonable approach as well. It'd definitely on my mind. To be very honest, I'm not sure how to effectively "help her with the process of refinancing the house" from my position.
Read the Refinance Mega Thread and help her apply to some lenders and negotiate terms. Best to pay off the cards first and let the credit rating tick up.
Core Four w/ nominal bonds & TIPS. Refi Rampage: Purchase: 4.125% 30 -> R1 3% 20 -> R2 2.375% 15 -> R3 shopping

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Eagle33
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Re: Helping my mother financially (CCs and housing)

Post by Eagle33 » Mon Aug 03, 2020 1:07 pm

quasicoh wrote:
Sun Aug 02, 2020 10:56 pm
I've been at this salary for close to 2 years, and been building towards this over the last 6(healthy salary progression). Over these 6 years I've been focused on paying of my own student loan debt(couple hundred k). I can definitely invest more in retirement than the 401k and that in the plans conditioned on some of these decisions.
Regarding your own retirement, don't forget "If you are travelling with a child or someone who requires assistance, secure your mask on first, and then assist the other person."
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.

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tyrion
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Re: Helping my mother financially (CCs and housing)

Post by tyrion » Mon Aug 03, 2020 1:57 pm

What would her finances look like without the credit card debt? You mentioned she is currently adding to the credit card debt to pay for gas and groceries.

If she had a fresh start could she afford gas and groceries? On a new credit card or a debit card.

Without knowing any family dynamics your plan sounds very workable. Pay off CC debt, she moves in a year to something more affordable. In 9 years her pension is available, presumably at a sufficient level to sustain her. After she downsizes she can concentrate on putting aside some extra money for retirement.

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CAsage
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Re: Helping my mother financially (CCs and housing)

Post by CAsage » Mon Aug 03, 2020 2:02 pm

Protecting her job and that priceless pension is critical. If the debt was caused by temporary abnormal expenses, then Mom should be able to make things work once that hurdle is past. Yes, I think you should pay those off for her, seems like you have a good start in life and can afford it easily. Look into refinancing if her mortgage interest rate is high, and downsizing (presume this is the original 4-person family home...) in a year when Sister heads off to college to a 2 bedroom would work. I'm not in favor of renting, as long term having a paid off house is very helpful in retirement.
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Re: Helping my mother financially (CCs and housing)

Post by tashnewbie » Mon Aug 03, 2020 2:14 pm

I think she should look into recasting her mortgage, if she can't refinance or it doesn't make sense. A recast wouldn't reduce the interest rate, but it would reduce the monthly payment, which would help her with cash flow. Contact the lender to see if they will do a no-cost recast (or a low-cost one for maybe a few hundred dollars). They're not required to do a recast, but it's worth investigating this as an option.

I agree with others that long term, your mom needs to downsize the house.

I think it also may be worth looking at her expenses and seeing if there's room to cut or change some things.

Buying a multi-family house and having her live there at sub-FMV seems complicated, from a tax and maintenance (unless you hire a property manager) perspective. I don't have any experience with real estate, but I personally would not make such a seemingly drastic decision right now.

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Re: Helping my mother financially (CCs and housing)

Post by Jack FFR1846 » Mon Aug 03, 2020 2:23 pm

Help her with a budget.
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quantAndHold
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Re: Helping my mother financially (CCs and housing)

Post by quantAndHold » Mon Aug 03, 2020 2:54 pm

So, I understand that the credit card debt is from the divorce, but they managed to run up at least $20k in credit card debt, and she ended with a house she clearly can’t afford by herself. I would try to understand (and get her to understand) how she ended up in that situation. If you just pay off the credit card debt, will that fix the problem, or does she need some credit counseling to keep from running the cards up again? If she isn’t on board with living within her means and staying out of debt, nothing you do for her is going to work for very long.

If this were my mom, I would help her create a budget, figure out how much she needs, and help her with a fixed amount monthly, if she will agree to a) pay down the credit cards herself on a schedule, and b) sell the house and move to someplace cheaper when daughter goes to college, and c) not use the credit cards for anything until everything is paid off, she has a small emergency fund, and she’s able to support herself without help.
Yes, I’m really that pedantic.

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Re: Helping my mother financially (CCs and housing)

Post by Sandtrap » Mon Aug 03, 2020 3:43 pm

Does your mother want to do what you proposed?
Did she ask?
Can you support both your mother and sister?
Does your mom want to move?
Is your mom willing to leave her own home to live in your home and pay rent?
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Re: Helping my mother financially (CCs and housing)

Post by BarbBrooklyn » Mon Aug 03, 2020 3:53 pm

Like so many women I know, your mom ended up with a house she can't afford to pay for or maintain. I get SO angry at hese divorce attorneys who make a big thing about " you'll get the house"....

Are there apts for rent where she lives so that sis can maintain school ties of house is sold?

Have you looked at her budget?
How will sis's college be funded?

It looks to me like the house needs to go, housing costs reduced and a workable budget structured.

Is mom asking for help?
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Re: Helping my mother financially (CCs and housing)

Post by Mudpuppy » Mon Aug 03, 2020 6:28 pm

A few things to keep in mind so you can remained mentally centered and fiscally stable through this.

First and foremost, your mother is a competent adult capable of making her own choices, even bad choices (or ones that you feel are bad choices). That means you cannot force her to give up credit cards or to spend any money you give her in a specific fashion. If you give her cash, you must come to internal peace with the fact that it could be spent in any way, shape, or form that cash can be spent.

Second, with that as a foundation, decide your own personal boundaries and types of support that you are willing to provide. You need to make sure that you don't ruin your own finances while trying to help your mother's finances. If you decide to provide financial support, decide if you will give your mother cash or if you will pay bills on her behalf. Also be aware of the nuances and implications of any financial support. For example, if you buy a house and let her rent it for below market value, the IRS considers that house to be a second residence, not a rental unit.

Third, talk to your mother. Express your concerns, while still being respectful of her autonomy as a competent adult. Ask her how you can help her. Let her know what you can provide in terms of financial support, and how that support would not jeopardize you financially. I assume that emotional support is a given, since you have these concerns to begin with, but it never hurts to speak that support out loud to a loved one.

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Re: Helping my mother financially (CCs and housing)

Post by Nutmeg » Mon Aug 03, 2020 10:19 pm

If you decide to provide financial support, decide if you will give your mother cash or if you will pay bills on her behalf.
I once provided money to someone to pay a bill, nonpayment of which would have had disastrous consequences for several people. The money was not used to pay the bill. Therefore, I had to then provide the same amount of money again in order to protect the innocent. I paid it directly the second time.

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Re: Helping my mother financially (CCs and housing)

Post by djpeteski » Tue Aug 04, 2020 7:59 am

Sorry to nit pick, but I am having trouble reconciling these factors about your finances:
quasicoh wrote:
Sat Aug 01, 2020 1:29 pm
- 20k in Student Loan debt @ ~3% interest rate
- ~70k cash-on-hand
I would advise, that tomorrow, you have ~50K cash on hand and zero student loan debt. I can't think of a good reason to keep it. Your cash is not earning 3% and your income is to high to qualify for a tax break.
Mother's current situation::
- 20k in CC debt from a bad divorce outcome
If it was me, tomorrow, I would have ~30K cash on hand. Given the reason, for this debt I would just bail mom out once. She did something right, she raised a child that is capable of making 300K/year. Time to per her back a bit, IMHO.

I would then broach the subject of her downsizing or exploring other options but I would not be too forceful. Keep in mind she was there before you were able to walk on your own.

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gr7070
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Re: Helping my mother financially (CCs and housing)

Post by gr7070 » Tue Aug 04, 2020 10:48 am

Your mother has 20k in debt and a stable job that presumably pays, at worst, a living wage. She is in no way shape or form at risk of bankruptcy not now or in the future.
quasicoh wrote:
Sat Aug 01, 2020 1:29 pm
- Mortgage ...payment is 65% of her (take-home)
The house needs to be sold. I would not wait a year.

It's an eventual reality and I don't see how it's that traumatic, especially since it truly is a reality. Not having, the lone, major financial stress in her life will likely help greatly in the trauma area???

She shouldn't have kept the house in the divorce - her attorney may have failed her in that regard.

Pay off your student loans today.

All you need to do is provide emotional support and help her sell that house ASAP.

She has way more than enough equity to pay off her 20k debt and buy an aforfable house.

Hell, rent for a year or two if preferred. Avoid the hassle of buying another home, get her feet under her, recover, etc.

If this debt is largely about getting out of a marriage she'll be/she is completely fine financially.

I'd largely stay out of it, again other than to provide emotional support and advice to sell the house ASAP.

If she bares fault for the debt due to irresponsible behavior you can't solve her debt problem. She has to do so by learning new financial behaviors.

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Re: Helping my mother financially (CCs and housing)

Post by Fulltimer » Tue Aug 04, 2020 12:09 pm

Would your mother consider getting housemates to help with the mortgage payment?

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