Downsides Aren't Worth the Savings

Dave owes $70,000 in student loans. His mother-in-law has offered to cash a CD out, pay off the loan, and Dave would pay her at 4.5% interest. Dave advises Dave to stay away from this deal.

QUESTION: Dave in Lexington owes $70,000 in student loans. He’s paying about 6.4% on these. His mother-in-law has a CD paying her 3.5%. She’s offered to cash the CD out, pay off the loan, and Dave would pay her at 4.5% interest. Dave advises Dave to stay away from this deal.

ANSWER: Let’s keep you on red beans and rice and a college student lifestyle instead of a lawyer lifestyle until you get the debt cleaned up. That should mean that you are debt-free in two years. All we’re talking about then is 3% on $35,000, which is $900 per year. I wouldn’t take the chance of making my mother-in-law mad for $900. It’s not worth it. One little check goes wrong, one little thing goes wrong, one little twist, her personality changes, you’ve got a deal with her, maybe you’re okay with it, but your wife starts feeling weird. The borrower is slave to the lender, and when you owe your mother-in-law money, Thanksgiving dinner tastes different. I wouldn’t take the risk for $1,000 when you’re making $100,000 a year and you’re going to be done in two years anyway. It’s a nice offer, and the mathematics seem to work, but the downsides are not worth the savings. I wouldn’t do it.