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Ask Dave

Untangling a Mess With Healthy Discussions

Linda gave her children loans using credit. Her daughter's van payment has been late a few times, and her son-in-law has been late quite a bit. Dave gives Linda some steps to follow.

QUESTION: Linda in Salt Lake City gave her children loans using credit. She bought her daughter an $80,000 home. She bought her second daughter a van for $32,000. Her son-in-law started a business, so she loaned him $45,000 on a credit card. Her daughter’s van payment has been late a few times, and her son-in-law has been late quite a bit. Dave gives Linda some steps to follow.

ANSWER: You have figured out that this is a really bad idea. I think the guy who went broke is not going to pay you. He went broke. I would first pay off the credit card that he’s paying. If the van is not paid off by then, I would pay off the van. I would not ask to be repaid. I think that debt is forgiven. That’s what I would do if I were in your shoes.

I think you were stupid to allow this to happen, and I think it cost you some money here. It’s going to cost you relationship the longer it goes.

The third piece is that house. We need to be having very clear discussions about that needs to happen by this date, or she needs to be ready to move because we’re going to sell the house—not because we’re throwing her out, but the conversation would sound like this. “I made a huge mistake by doing this for you because I’ve noticed with all three of these deals that it has changed our relationship, and I’m not going to have that anymore. I’m more concerned about our relationship than I am about vans and credit cards and houses. You and I need to bring this to a close. This can’t go on in perpetuation because I don’t want to have this affect our relationship for five or 10 years. We need to have an end date to this that we’re both comfortable with, and let’s come up with that together.” I think it sounds like two or three years, but I don’t think it sounds like any more than that for the house. But the van and the credit cards, I would just pay them off and forget it. First the credit cards, then the van.

“Just take care of my grandkids. That’s all I want you to do.” Maybe you could ask them to go through Financial Peace University as a way of repaying you so that their lives are changed—or something like that. What we’re trying to do here is break the cycle of debt. If they don’t learn anything like you have from this negative experience, then maybe we didn’t accomplish anything by forgiving the debt. So maybe we forgive the debt if they agree to do this, this and this. They agree to go through Financial Peace University and put $5,000 in the kids’ college funds or something.

The discussion you had with them sounds very healthy. I like that.

Let’s just get this mess cleaned up so everybody can have the dignity of having their own reasonable boundaries in their household. That’s what the debt does. It violates the boundaries. That’s what you’re discovering.

I really like where your head and your heart are on this. My point is just to work through it as fast as you can, and you have a huge income and you’ve done a great job of cleaning off debt. Cleaning off another $30,000 or so is doable for you, and it really is going to set you free and set your kids free. Then let’s get that house refinanced or sold or something within two to three years so you guys don’t get stuck in that.