What interest rate would you charge your family?

Legacy_user

This is a really confusing situation. My Mum has £10,000 of CC debt and all are maxed out, and she is paying £2000 per year on interest and can't reduce the balances. I have this money in my bank and want to help her because we don't think she will get a balance transfer card because we applied to the Barclays one and got rejected.

If I lend her this £10000, does she just pay me back the £10000 over 4 years or should I make her pay me back £10000 plus interest equivalent that of an ISA that my money would be in. I am struggling what to do here guys.

VfM4meplse

If you have to ask, then don't bother to help your Mum out. Stick the money in an ISA instead.

jillymit

I think I would take the hit (loss of interest) as I don't think I would charge my Mum anything extra to borrow it.
And (I know this is none of my business) ................
This site is littered with kind hearted people let down and out of pocket by lending family money, there must reasons to why she is unable to get credit cheaply elsewhere.
Someone will be along in a minute with a few ideas as to how to help your Mum out and protect your cash (whether you like it or not )

izools

If I lent my mother money interest wouldn't come in to the equasion.

Lending money to your mother is not a business matter, it is a personal matter.

VfM4meplse wrote: »

If you have to ask, then don't bother to help your Mum out. Stick the money in an ISA instead.

^This.

I personally the best way forwards is to help your mother identify what brought her to this level of debt in the first place, what can be done to prevent it happening again, and devise a solid plan to tackle the debt more effectively.

This may include:

Cancelling the cards to that no more spending is permitted
Writing to the companies requesting they reduce / freeze interest (unlikely but worth a shot)
Re-budgeting and identifying areas to cut back on
Entering in to a DMP.

My mother was up to her eyeballs in debt some years ago and through effective help and guidance from me and a lot of hard work from herself she now lives a comfortable and solvent lifestyle, but it took a lot of hard graft and thrifty living in the mean time.

SnowTiger

berbastrike wrote: »

My Mum has £10,000 of CC debt and all are maxed out, and she is paying £2000 per year on interest and can't reduce the balances.

[...]

If I lend her this £10000, does she just pay me back the £10000 over 4 years or should I make her pay me back £10000 plus interest...

Perhaps this will help you decide: http://www.youtube.com/watch?v=eaiaFEWnJXM

YorkshireBoy

berbastrike wrote: »

My Mum has £10,000 of CC debt and all are maxed out

Do you know the reason(s) for this situation existing?

And will your helping her out mean she runs up debts again?

When I've borrowed money from my parents (many years ago when I had nowt!) I expected/insisted on suitable restitution for them. Maybe your mother feels the same way and the decision is hers to offer, rather than yours to demand?

izools

SnowTiger wrote: »

Perhaps this will help you decide: http://www.youtube.com/watch?v=eaiaFEWnJXM

Awwwwww

System

The reason is simply my Mum spends a lot of money on things she can't afford.

WE have agreed that she will cut up all the cards and never get another card so hopefully no other debts like this again.

Gromitt

I can understanding overspending on things you can't really afford, but by the tune of 10K ?

Can you return or sell some of the items that you don't actually need?

System

No, mostly clothes have been bought so they are probably not worth much.

chattychappy

To answer the question without getting into the rights/wrongs of it, I'd go for something like base rate + 4.5%. That would start you off at 5%. It would massively reduce her interest bill and mean that most of her payment to you would be reducing capital rather than just going to interest. At the same time you're not losing out either (except in terms of risk).

You've always got the option to waive interest later if times become even harder for her.

Some years ago I offered my sister a similar deal. She thought it too harsh. So I offered her base -2%, but rising 1% each year. Ie :

Year 1: base -2%
Year 2: base - 1%
Year 3: base rate

etc.

She was free to repay as much or as little as she liked, provided she paid at least the interest.

12 years later, she rather regrets not taking the original offer. To her credit she is still keeping up with the interest - now running at 10.5%.