Scott Pape: What to do if you marry into debt
MARRYING into a family deep in debt is not a good idea. Here is how to tackle the problem, writes Barefoot Investor.
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MARRYING into a family deep in debt is not a good idea. Here is how to tackle the problem.
EMMA ASKS: Right now I feel completely helpless. At 21 I purchased my home and have been renting it out for the past six years. I have always been a good saver. I met my partner a few years ago and we have been planning our wedding. However, I recently found out he has taken out a $50,000 personal loan on behalf of his parents as they have been struggling. They make the repayments, but the debt keeps getting bigger. Their current lifestyle exceeds their pension payments by 150 per cent! They have a $2 million home that they have promised they will sell and repay the debt, but they’ve been talking about it for years. How can I help his parents and him make better choices and live debt free?
BAREFOOT REPLIES: You’re entering into a family that’s built on denial. You won’t change his parents’ bad behaviour. But you can try to stop your fiance enabling it. The big risk is that you’ll end up “breastfeeding” these Baby Boomers forever. So here’s how I suggest you should handle it: First, both make the repayments on their debt — but only till the end of the year. This will give his parents enough time to sell the house and repay the debt. Second, sit down with your parents-in-law and tell them that you can’t afford it, because you’re saving for your wedding and setting up your own family. But also tell them that you — the loving but firm daughter-in-law — want to help them out of this temporary tight spot. OK, so the thought of doing that probably makes your blood boil, right? But you and your fiance are already effectively paying for the debt anyway. This way you get to cover yourself in glory, amp up the emotional pressure, and shine a light on their stupidity. Third, I’d give them a copy of my book, which will show them how they can live a comfortable lifestyle with just $250,000 combined in super. Finally, if your fiance wants to keep living in denial with his parents, let him. Just don’t marry him.
PLAN FOR FUTURE
DANIELLE ASKS: I was in a pretty horrific accident six years ago — most of my body was burnt after being in a car accident that was on fire. I will get $900,000 from my insurance company, though I will need to put aside some of it for my future burn surgeries. I am going through the process of building a house with my partner. Our house and land will come to $490,000, and we will be eligible for the $15,000 first-home buyer’s grant. We both have jobs (I work casual 12 to 24 hours a week as I can’t work more than that). We own both our cars. He still lives at home and I rent with my brother. We have no debts or loans and we each have more than $12,000 in our saving accounts. Honestly I am freaking out, because I am 25 and have no idea about finances or what to do with my life. The insurance settlement goes through in just under a month. What should I do?
BAREFOOT REPLIES: I’m so sorry for what happened to you. It must have been horrendous. I know it’s a lot of money, but you don’t need to freak out. You could (and probably should) lock most of it away in a term deposit for 12 months while you take stock of things. There’s absolutely no need to feel pressure. None. If you rush, you could make impulsive, emotional decisions. Then, when you’re ready, here’s what I’d suggest you think about: First, talk to your medical team and get an accurate understanding of your future medical costs, and when you’ll need to pay them. Over-estimate. Then, if it’s in the next 10 years, keep that money in a high-interest online savings account. Second, if you can see yourself living in the house for at least the next 10 years, go buy it (if you have enough left over after your medical costs, that is). However, I’d like you to buy it outright, and in your name only. Go and see a solicitor and have them draw up a cohabitation agreement between you and your boyfriend. He can pay you rent and you can split living costs — which will help, given you can’t work full time. Three, I’d keep $10,000 in a (separate) high-interest online savings account as Mojo money. Finally, I’d invest the rest in a low-cost share fund. Good luck!
DROWNING IN DEBT
LINDA ASKS: My stepdaughter is a single mum in her early 40s, with two kids. She earns $60,000 working three days a week, and has never owned property. She has $10,000 saved. She wants her bank to second-mortgage my house for a deposit for her in country Victoria on a house worth $350,000. I have $102,000 in credit card debt and (at most) $100,000 equity in my house. I am struggling with my own debt but I feel sorry for her and would like to help. I am widowed from my second husband. What should I do?
BAREFOOT REPLIES: It’s beautiful that you are wanting to help out your stepdaughter ... but with $102,000 in credit card debt you are clearly not in any financial shape to help anyone. It’s like someone who can’t swim diving into the sea to rescue a drowning person. Who’s going to rescue you?
SHOWING ME THE WAY
ARUNA ASKS: I want to thank you. Reading your book helped me take financial control. I am a single mum of three. But in seven months I have paid down $10,400 in debt, saved $2000 in Mojo, put aside $1000 for Christmas, registered my car, and purchased a new fridge and dryer — all without having to use my credit card. In 12 months I will be DEBT FREE. Thank you! I am sleeping easy at night for the first time in years and can now make a better future for my kids.
BAREFOOT REPLIES: I can feel your excitement dripping off the page. You’re in control, you’re winning, you’re unstoppable! You may think your kids aren’t paying attention … but I promise you they are. Well done.
Read more Barefoot Investor
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Couples need to share their money if they are going to share a life
The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice
Originally published as Scott Pape: What to do if you marry into debt
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