Is it even worth trying to give financial advice? UPDATE #28, #42

[AlansGirl]

I have an anecdote to share.  A few years ago, my bestest friend and her long-term live-in boyfriend split up.  Suddenly faced with one income instead of two, she was having a hard time making ends meet, falling behind, borrowing from her parents.  She asked me for advice because it's kinda what I do for a living - not a personal financial planner but I handle finances for 2 of my boss's companies and do the planning, savings vs. spending, decisions about cash purchase vs. loans, stuff like that.  I was happy to do it and hopeful of being some help.  She gave me access to everything - copies of all her bills, password to her online bank account, everything - and I spent a great deal of time looking at every last bit of it, trying to think of solutions and offer helpful suggestions.  Not writing that like I'm bragging on myself, just that I really truly tried - I didn't just look over her check register and say, "You should downgrade to basic cable."

I put together this huge document - 5 or so pages - of a list of things to change and suggestions to try, everything from starting an Etsy shop (she is very artistic and gifted with jewelry making, but only does it to give as gifts to friends/family, not as a money maker), buying a fuel-efficient car (she commutes over 100 miles/day in a huge, gas-guzzling SUV) to simply staying more aware of her bank balances.  In one month alone, she'd racked up enough NSF charges to pay any one of several of the bills she was behind on.  Seriously, like $245 in just one month.

My husband and I refer to that document as "The Great Budget Manifesto".  And out of all those things (some easy, some more difficult) that I suggested, in the 3 - 4 years since, the only - the ONLY - suggestion from The Great Budget Manifesto that she implemented?  She switched to an unlimited text plan on Verizon b/c I pointed out that she'd racked up far, far more in text overage than upgrading to unlimited would cost.  I don't mean to imply that she should have followed my instructions to the letter, or that my way was 'right' - rather that she asked for advice, I took it way seriously and tried to do a good job, and...well, not nothing, but not much. 

My point is, sure, offer some suggestions or point her in the right direction, that's what friends do - but don't be surprised if nothing happens, they don't change, and the $50K is gone as soon as a $1000 bonus is, and them with as little idea as to where it went as when you check your wallet for exact change and don't have any.  I think people can change - habits, behaviors, beliefs - but until it really matters to them to do so, they won't.

[Virg]

Kaypeep wrote:

"I'd advise her friend to contact one or two credit cards about paying off the debt with a lump sum.  Most of what they owe is probably interest.  Some banks are willing to write off almost half of what you owe if you pay off an agreed upon balance.  For example, if  friend owes $30K on a card, the bank may be willing to accept $15K in a lump sum, and they will write off the other $15.  Then you can close the card."

For most consumer credit cards, this isn't accurate.  Consumer credit cards very rarely allow buildup of interest as part of the debt (notice that the minimum payment is larger than the assessed interest on your statement if you carry a balance) so the debt load is virtually always principal.  Most creditors will discuss payoffs if you're likely to declare bankruptcy and will write off part of the balance because it's easier on them to accept partial payment rather than try to fight it out with your other creditors, but that's an extreme case so I wouldn't consider it reliable as a way to reduce debt unless you're on the ragged edge and missing payments.  Getting financial advice is certainly a wise idea, but I wanted to point out that credit card companies aren't the first debt that's likely to get written off.

Virg

[Tea Drinker]

The rules on consumer cards have changed, so it's hard to rack up as much interest, but a lot depends on the interest rate, how long they've been letting debt build up (so what rules it was under), and whether it includes things like cash advances, for which there's usually a fee of x% in addition to interest.

Just for reference, I have grabbed my last credit card bill. Note that I pay in full every month, so there is no previous balance.

The actual amount I spent for that month was $510.04.

The box under "minimum payment warning" says that if I pay only the minimum each month, it will cost me an estimated total of $594. That's $84 I didn't spend on travel, groceries, clothing, or anything else specific. Or, from another angle, 1/6 of the total would be interest. That's for an interest rate of 15.4%, which isn't low, but is probably less than the person being discussed is paying, given her described spending habits.

(I'm using this card because it gets me points toward travel; I have another with a lower interest rate that I use if I might have to carry a balance.)

[oogyda]

I have learned through personal, painful experience with our most long term, very dear friends that you can give all the advice you want, but it will most likely go unheeded.

It may also be unwelcome and come off as being judgemental. 

Our friends are wonderful people, but they have no financial sense or responsibility.  They have been through bankruptcy 4 times.  The most recent being almost 2 years ago.  And right now are facing foreclosure. 

The most recent issues are complicated by recent job loss due to an increase in bi-polar symptoms that resulted in a job loss.  However, if there had been reasonable steps taken along the way, they would still have enough money to get by on.  With only her working and his navy pension, they earn about what we do. 

I will help all I can with physical labor, providing a meal now and then, transportation when needed and whatever emotional support I can give.  I will not loan or give them money.  It won't help, and they wouldn't use it for what it should be used for.  Our Christmas present to them will be the part that is neede fix their washing machine and Oogydad will install it.  Someone else has apparently already given them the money for the part...I think it went for gifts for their grandchildren. 

If THEY want to fix it, they will. 

Be very wary of the joint venture you have with them if they do file bankruptcy, they may be required to sell...which could force you to sell or buy out their share. 

[Virg]

Tea Drinker wrote:

"The box under "minimum payment warning" says that if I pay only the minimum each month, it will cost me an estimated total of $594. That's $84 I didn't spend on travel, groceries, clothing, or anything else specific. Or, from another angle, 1/6 of the total would be interest."

The point is that the current balance owed does not include that interest, and so if someone owes $50,000 on credit cards the balance doesn't include any interest so saying "most of what they owe is probably interest" is inaccurate and trying to convince the bank to take a short payment because of that concept is a non-starter.  To turn that back to your example, you owe $510.04, and if you pay only minimums then at the end of umpty months you will have paid $594.  If you called the bank and said, "How about I pay less than $510.04 because part of it is interest?" they'll tell you that the balance on the card is what you charged and doesn't yet include interest, so you owe it all, and the only way to add interest to that balance without charging more is to skip a payment since every minimum payment must be more than the assessed interest by law.  Said a simpler way, every minimum payment includes all of the interest charged for the last cycle plus a portion of the principal debt, so assuming you always pay at least the minimum there's never any accrued interest in the balance.  In your own words, skipping payments is the only way to "rack up interest" on a credit card, and it's been that way for nearly twenty years.

Virg

[Amara]

I don't want to harp on this but in re-reading your original post I can so clearly see they are both compulsive debtors and not just people in debt. That is, they can't work with any financial plan or advice unless and until they realize their spending is out of control. Not everyone in debt, even in severe debt, is a compulsive debtor just as not every heavy drinker is an alcoholic. But having been there and having seen this in many I believe this to be accurate in this case. I think, OP, that you should consider that however kind and helpful your suggestions that they are unlikely to implement them. And they'll always have an excuse.

The only thing you can really do is to untangle your financial investment in the "boat" from them--quickly. Because once your friend comes into that money it is going to not just disappear in weeks or, at most, a few months, they are going to end up far worse. And when that happens you really need to have your own finances safely protected.

[sparksals]

The best piece of advice you can give is to keep that money in her name so her husband doesn't get his paws on it.   It is an inheritence and thus, her money.   He has zero say in it and she should pay off bills or put it in an account her name only for savings. 

[JeanFromBNA]

I recommend http://www.daveramsey.com/category/get-started/

Re: Debt consolidation.  She shouldn't pay for that.  She can do it herself.

[Precarious Armada]

The best piece of advice you can give is to keep that money in her name so her husband doesn't get his paws on it.   It is an inheritence and thus, her money.   He has zero say in it and she should pay off bills or put it in an account her name only for savings.

That.

[Virg]

sparksals wrote:

"The best piece of advice you can give is to keep that money in her name so her husband doesn't get his paws on it."

This isn't going to help.  They have massive credit card debt, and if she pays that bill down she's already said that he'll just charge it back up.  If she's not willing to fix that problem at the source then there's nothing she's going to be able to do to hide the money from him in the long run.  I'll agree with the other posters who said that the OP should unhitch her financial wagon from this couple ASAP and let them deal with their own finances.

Virg

[sparksals]

sparksals wrote:

"The best piece of advice you can give is to keep that money in her name so her husband doesn't get his paws on it."

This isn't going to help.  They have massive credit card debt, and if she pays that bill down she's already said that he'll just charge it back up.  If she's not willing to fix that problem at the source then there's nothing she's going to be able to do to hide the money from him in the long run.  I'll agree with the other posters who said that the OP should unhitch her financial wagon from this couple ASAP and let them deal with their own finances.

Virg

The problem is he wants to spend some of that money rather than put it towards debt.  I agree, it is probably a lost cause, but once paying off any debt, the best thing for her to do is close the accounts that are paid off.  Then he won't have anything to rack up.

I also agree the OP should dissolve any joint financial venture with them. 

[Fleur]

I agree with PP that these people are a financial disaster in progress and you need to get yourself disentagled from them. Someone who's $100K in debt and thinks that her husband will just run the debt up again, and seems mostly ok with that, is not someone you want to have any financial relationship with.

As for giving advice: Other than "talk to a financial advisor" and "get marriage counseling," I wouldn't say a word.

I agree. As far as the 'boat' goes, I say run for the hills. Though of course, that is easier said than done. But you shouldn't let your friendly feeling towards this woman obscure the fact that you need to make good on this asset as well. People like her make me mad, she needs a financial counsellor, stat.

[Slartibartfast]

I talked to her briefly today - I didn't ask, but from what she mentioned about this and that it sounds like she's planning to pay off her car (which is in her name and she's making payments for out of her own money) and is going to spend some and save some of the rest.  Paying off her car sounds like a good way to get rid of some debt her DH can't then just rack up again, so I'm glad she's at least thinking in that direction!

[Winterlight]

At least it's something!

[BatCity]

I agree with with Jean.  Dave Ramsey has a good technique for breaking out of the bad debt pattern.  Maybe for the holidays you can give her a copy of "The Total Money Makeover" if she's a reader (if not, maybe point her to his radio show).