Important factors:

1) What’t the interest rate, and what’s the minimum payment per month? For a 40,000 loan on credit cards, the minimum payment will be between $800 (2% minimum payment), done in about 5 years and 1600 (4% minimum payment, done in about 2.5 years) per month.

1) What are the comparative interest rates, and can you reduce the differential by transferring balances or through other methods? If the interest rate is 6% your loans will be paid in between 2.5 and 5 years.

2) If the interest rate is on the low side, unless you have a pressing reason (you will need a lump of cash to start a business, for example), there is probably no reason to borrow from anyone to take care of this. You have already said you can cover the payments. And the debt will be gone in several years anyways, after which you can start to build up savings.

From my limited perspective, I’d say leave the money in the 401k, don’t borrow from anyone, learn to budget, get rid of (either temporarily or permanently) expense drainers as much as possible such as collections, car/car payments, eating out, magazine subscriptions or where ever Mandy discoveres her money is going all the while snowballing debt, asking for lower rates, etc.

Yes, it’s scary and hard to do this. But leaving the 401k alone has one very useful purpose — it can serve as an emergency fund in a genuine, in-the-hospital, out-of-work, nowhere-to-go emergency; not a ‘my boyfriend used my credit card and now I’m in a bit over my comfort level of debt’ type so-called emergency.

Maybe I’m sounding cruel and I truly don’t know all the details of Mandy’s situation — but here’s one piece of consolation for her. She didn’t marry him and have to pay an extra $3000 for a divorce.

She should try to find a lender. Since she has a job that pays well, the lender will look to see

1. Current income to debt ratio as well as job history (checking for erratic employment history, if any);

2. Pattern of bill payments: is there a chronic history of late bill payments or does it seem to come about suddenly (which would offer the benefit of the doubt that a personal hardship of some sort has precipitated the lapse in payments to creditors).

Those are the major things that will be looked at. Of course, Mandy already knows that any lender aside from family and friends is going to charge her interest, the amount being dependent upon the above factors and others (credit score).

Good luck; I think she can get someone to lend to her if she’s willing to accept that higher interest rate — which would seem reasonable to do, considering her likely dearth of options at this time.

Since Mandy is employed there might be a lender willing to work with her. The reluctance to lend money basically comes about as a result of:

1. No employment or:
history of spotty, erratic
job history;

Employment that is not documented, i.e., “under the table.”

3.

Note, I accidentally left this note on another post. Sorry about that!

I think the point is, she said she is paying “high” credit card interest rates due to her poor credit score. I’d assume those rates could be 22% or so, although the rate wasn’t specified. That’s a crushing interest rate. Although she can (barely) swing it with her income, if she could cut that down to 8%, that would allow her a lot more wiggle room in her budget, build up and emergency fund, and generally be on more stable ground financially.

“…have a job that pays well enough that I can make the payments on the debt fairly easily, but building any sort of emergency fund is very slow and I’m unable to make much of an extra payment on the debt.”

Maybe she can have discussions with family members about possible future borrowing in case she should have an emergency before she builds an emergency fund. She definitely should try to get her interest rates lowered.

I’m in a similar situation as her. I currently have a little over $30k in CC debt and $15k in student loans. I am single and make $33K a year and can still save a little and pay more than minimums. It’s going to take a while but each month is a little better than the previous one.

Trent has written on the dangers of lending to family/freinds many times. My philosophy is never to lend any money to family/friends that I am not prepared to never see again. Trent calls this “gifting” the money.

http://www.thesimpledollar.com/2007/01/05/your-friend-or-family-member-asks-you-for-a-loan-what-do-you-do/

Fair has nothing to do with it, as you are not taking from them, you are offering them the option to loan you money at favorable rates. Borrowing from family members means meeting your obligations and not shafting them.

If you have any concern about their ability to loan you the money, you should give full disclosure to them about your finances and require full disclosure FROM them about theirs. Like, “how soon will you be in a position to NEED this money back? Are these time terms adequate to your needs?” How much money do you have available to you over the next x years? If you are uncomfortable asking these questions, or if either party has trouble conceptualizing this as a business agreement (not uncommon), then don’t go ahead. The money they lend you should be money they weren’t needing to touch for 5 or 10 years. I wouldn’t take a loan from someone a family member who couldn’t keep it straight was going to start feeling justified in analyzing how I spent my money. In that case, I would get the money back and pay it to them in lump sum immediately. Their only concern should be, “did he/she send me the checks he/she agreed to”. If it becomes apparent that the person is incapable of doing that, get the money in lump sum immediately and pay them back. Make sure there is no prepayment penalty in your loan agreement with them. In any case, you aren’t going to stiff your family, are you? If you don’t have confidence not to do that, definitely don’t attempt to go the family loan route.
Also, keep in mind that family does not necessarily mean parents or grandparents. It could also mean a brother or sister or aunt or uncle if you have an appropriate relationship to them.

If you choose to go the family route, you need to disclose everything – all your debts, how much you make, your expenses, what you are doing to take personal responsibility even if it’s a hard choice like getting a roommate, and your 401K. They have a right to say no. Just make sure this doesn’t make for unpleasant holiday visits.

Similarly, though, borrowing money from family entirely depends on the family member and situation. Does Mandy’s family talk about money? Do they loan money to each other? Do they have money to loan? Where is that money that she’d be borrowing – if it’s invested in stocks right now, then it’s unfair to ask the potential benefactor to cash those out at a low market.

My suggestion would be (1) accept that Mandy will be in debt for a while (2) reduce any interest rates as possible (3) talk about a family loan of $10k or less to cover the highest interest rate parts of the debt.

So, I started negotiating with the lenders, instead. I got one loan deferred for an entire year! That made it easier to see a light at the end of the tunnel. Now, after all this, I find that I had other options. I found a way to increase income, and I am now only behind on one loan, instead of four. So, that’s my next negotiation point. But, if I had simply defaulted on everything, my credit would have been trashed and I’d still be nowhere near to setting things right. And, I would have had to tap my retirement accounts to settle the debt anyway, at pennies on the dollar. Not really a good deal!

Most of us got to where we are today through the support and investment of family members through our childhood, in bringing us up, educating us, and, to varying degrees of success, helping us grow to responsibility. How much did that cost family members in time and cash? Quite a bit. Yet some readers think it’s outlandish to look for family support, when often it was given for years and years freely without needing to be asked for.

In my recent family history (going back 2 generations) my paternal grandfather bought a business (retail store) after a one year search while he was jobless in 1942, partly with his saved funds, and partly with a family loan which he repaid, presumable on schedule. Family members relied upon one another to have their act together, and often served as “back up” both in hard financial times and in times of opportunity. One of my friends started her business with a combination of funds, including (you guessed!) a business loan from one of her family members.

My paternal great-grandfather paid for family and friend’s passage from Ireland, guaranteeing the US federal government to support them financially in the event they had difficulty finding employment (this was a condition of their admittance to the United States).
That could be looked at as a family/personal loan? Was that wrong? Were those people wrong to improve their situation using their family member/friends’ financial support?

I guess the main issue here is whether you are financially responsible and can deliver on a contract. If you can, and the family member is able and willing to lend, I don’t necessarily see a problem with it.

That being said, from the info. Trent has supplied, It looks like “mandy” is not quite on that level, if she allowed someone to take advantage of her for that long. Hindsight is 20/20: She would have been better off giving the man a loan with a written contract if he was short on cash and she wanted to help him. Then she would have legal recourse that she doesn’t now have. Also, at each increment of indebtedness, it would have required a clear look at the sums being lent and (not) repaid, which probably would have limited the amount she ended up lending. But instead, it sounds like she commingled their finances in a way that jeopardized her financial security. If she is actually recovering, has adequate (and secure) income, and can service a loan to CitiGroup, she can probably do the same on a loan drawn from family funds, and do it in a way that is mutually beneficial for both her and her lending family member(s) It is a heavier emotional responsibility to borrow from family, sure, but that is incentive to be doubly sure you meet your obligations to them.

Cashing in a 401k is beyond foolish. She’ll lose almost half the money to taxes/penalties and still not have enough to repay the debt. Don’t fix one stupid mistake with another stupid mistake.

“Mandy’s” poor credit means her credit lines are maxed out and she doesn’t pay her bills on time. If an institution which specializes in lending money doesn’t trust her, why should her family or friends? If someone lends her money or co-signs a loan, “Mandy” will have reassigned her debt to that person. $30K is not a trivial amount of money to write off, “Mandy” would then become responsible for a $30K income tax hit if that were to happen.

As someone working in the credit card industry, I have to take exception to, or at least qualify some of the advice given.

Keep in mind that in order to get a rate reduction, it’s not just a matter of screaming until you get your way. If you have had late payments, over limit issues, returned checks, you’re at higher rates because you’ve already shown you are a problem customer.

I know this sounds harsh, but the hard core reality is that you have to have a *stellar* account in order to get a rate reduction. So please look seriously, and *realistically* at your payment history before you try this and be aware that in the current credit environment, you won’t get a rate reduction if you have any black marks in the last year. That means no late payments at all.

You can certainly ask for a supervisor but please be aware that you have no *right* to speak to a supervisor. Keep in mind just how many people advise you to demand a supervisor when you don’t get what you want. Again, consider what your history with your account really looks like. Trent is right in that there’s nothing wrong with asking but sometimes you are going to hear “no” and it’s rarely because the person on the other side is simply being mean/hateful/stupid.

And the one piece of advise I really disagree with is suggesting you’re having difficulty paying your bill as a bargaining tactic. Suggesting you can’t pay your bill is a huge red flag that maybe you won’t pay your bill. These days, accounts are being watched very carefully. With credit being tight, it will get noted as a potential problem.

Please also be aware that namecalling, guilt tripping and all around insulting the person you speak with rarely helps your case. If you don’t like being treating like a dumb high school drop out peon who is clearly incompetant, possibly retarded, and not empowered to handle simple tasks… then do you really think that the person you just said this to really feels like doing you a favor?