Bank of mum and dad

concernedparent

hi, My 40yr old daughter and hubby have managed ro rack up £27600 worth of debt made up of several loans. Shes looked into consolidating them al into one to be able to pay out less each month but has not found a willing lender: now turned to us for a possible loan.
We are pensioners with savings but im reluctant to lend as we would have no guarantee of repayment if things took a turn for the worst ie, regarding their emplyment satatus or health; also how would we stand in regards to our friends HMRC ?
Minds in a turmoil, anyone have any suggestions?

enthusiasticsaver

Two pieces of advice.

Lending money to family and friends rarely ends well. I would not do it unless you can afford to lose it and are willing to do so.

Consolidating debt is something which is not recommended either. Presumably they got into debt through overspending and consolidating it into one payment usually means the bad budgeting and overspending continues so very shortly afterwards the credit cards etc build up again plus of course the borrower still has the consolidation loan. That usually means the borrowing increases, the debts become more expensive as they are paid over a longer period and any emergency like job loss or health issues mean the potential for bankruptcy or debt management plans.

Tell your daughter and husband to post their statement of affairs on here and ask for advice. The best advice is to control spending better, reduce spending on non essentials or increase income by taking in a lodger or a second job. Consolidating debt without sorting out why they got into debt in the first place is not helpful.

Working_Mum

This is a tough one concenredparent,
You are under no obligation to loan your daughter and her husband money. If you do end up loaning them money you can cover yourself legally but it could get messy. I have borrowed money from my parents when I needed to start my business and they were able to help me. I repaid it within the agreed timescale but I wasn't consolidating debts.

If your daughter was asking for help from this Forum we would suggest she posts a Statement of Affairs and then would give her advice based on facts of her situation. The advice would always be to not consolidate the various debts into one lump sum because unless you change your baseline behaviour often people end up in the same position down the line...but worse because they still got the hardcore debt from the first consolidation. You'll read lots of stories on her about people consolidating a few times before they "ping" get their Light Bulb Moment and realise their spending is out of control.

I think my advice would be to point her in this direction, ask her to start a thread and see what the suggestions are from the guys with the experience to advise.

It must be tough for you but I think this is really make or break time for your daughter and she, along with her husband, need to sort this issue by themselves.

pjcox2005

I've not been in the situation but I think you should remember that anything you can do is a help and shouldn't be expected. You are also perfectly entitled to say no or have stipulations on what's needed from them in order to help.


Personally, I would recommend here and adding a statement of affairs as others have said, or help them direct if you have that skill set.


If they could demonstrate an understanding of how they got into the situation and what they were going to do to get out of it then I'd be willing to offer help.


I would definitely not pay or loan them the full balance (it does not need to be all or nothing scenario!), but I would loan or gift them a smaller amount which may allow them to pay off any very high interest debt and give them some breathing room which may allow them to snowball faster (e.g. access to 0% balance transfers which may become available with less debt).


Given their situation I'd treat any money in my mind as a gift (but maybe not tell them that), and be pleasantly surprised if they did ultimately repay once they were in a position to do so.


Finally don't compromise your retirement savings though, we're talking lending money that you could recoup from your own lifestyle by cutting back (i.e. not having a holiday next year if it came to it).

dreaming

I would be very wary of lending large sums of cash to them but I would offer my support (with no judgemental words if possible) in sorting out a budget, and/or direct them to one of the free debt counselling companies.

It is possible that there would be HMRC implications - but my main question would be why should you subsidise their lifestyle at the risk of your comfort as you age? Do you know why the loans were taken out in the first place - bad money management, large purchases, general living expenses? Are they trying to address the situation themselves - cutting down expenditure, getting 2nd jobs etc? If they were I would offer practical help where possible but I certainly wouldn't be considering handing over large sums of money.

pjcox2005

Just to clarify, there aren't any tax on gifts in the UK so no immediate tax implications for them or you.


The potential risk is that it could be treated within your estate for inheritance tax purposes if you die within 7 years, but in order for that to be a risk you and your husband/wife would need to leave an estate worth more than £700k as well as the gifts being over £12k if you and your husband haven't gifted anything else over the last two years (each individual has a £3k per year exemption amongst other things).


i.e. Don't worry about HMRC as that's unlikely to be a factor.

Hillwalker11

I am a parent of two adult children and I certainly wouldn't do it. I think it is called tough love!. Your daughter is not an irresponsible teenager, she and her husband are adults and they need to face up to the mess they are in,set a budget and slowly pay off what they owe. It is the only way they will learn from their mistakes.
It sounds harsh but borrowing from you is the easy way out, they may relax and not be too concerned about a timeline to pay it back. Perhaps as a compromise, see how they are tackling this debt over the next year and if they are facing up to it and setting things in motion regarding repayments perhaps you could offer a little help. As pensioners you have to hold on to your savings.
I know you feel guilty but the best lesson you can give them is to offer to help them sort out a budget and a sensible repayment plan.Unfortunately they will learn nothing from your generosity and could end up worse off, with more debt.
Hopefully as a payment plan settles in they will realise that this is the best way forward,and gain some pleasure in the fact that they are paying for it themselves as they see the amount decreasing.
Sometimes life is hard, but they will be learning a very valuable tough lesson.

elsien

When lending money to friends and family you must always consider the implications of the worst case scenario.
Would you be willing to take your daughter to court to reclaim the money if necessary to enforce the debt? Can you afford to lose the money if it never gets repaid?
If the answer to either of these is no, then don't do it.
At the very least, have an honest conversation about how these debts have been run up. If they are overspending on a regular basis and your daughter and son-in-law are still doing an ostrich impression with regards to the need to cut back then once you have bailed them out they will continue to rack up more debt. You need to be very careful that your helping them is not enabling their overspending to continue to future.

pidge04

Signpost them in this direction. That might help them to break the consolidation cycle if this has been their pattern over the years.

I used to consolidate my debts by borrowing more money. It didn’t help me.

Coming here, changing my habits and living within my means and paying off my debt is working so far with me. Hopefully the cycle is breaking and I will never need to consolidate again.

You can help in other ways I am sure. Help them now to break the consolidation cycle.