Taking a loan from a relative

Nerfherder

Nerfherder

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So first of all - this is not a thread about IF I should take a loan from a relative. I know I should not, I have done it before and it was a pain.
However, this relative (MIL) has come up with a scheme that is actually pretty clever. Might not have been her idea but I think its mutually beneficial, any way I don't care she lent money to her son like this and it worked well.

So, she has ever been really rich but is insanely good at living a frugal life and saving. Then 2 years ago her husband dies and leaves her with a fair amount of money - hence she is now in the position to lend it out.
Investment has not gone very well and with all the tax etc its slowly eating away at her nest egg.

So one of the things she has is an tax free savings account, the problem is you can only have one and you can't have more than R500k in it.
I don't have one of those savings accounts.... I do have R35k worth of credit card debt and at 24% its starting to add up I can't pay the car off quick enough and that 35k is going to cost me 50k in the end.
IF she loans me enough money to cover my debt and I start up one of those savings accounts in my name I can pay her back at a moderate amount and it will out perform any of her investments.
We would probably agree on a fixed amount that I would pay back and not make complicated interest payments. So I would borrow 35k and pay back 38k in a year at a rate of 3k pm.
Her 35k investment would earn 8% + what ever % the savings account earns. So its a pretty good ROI for her and is completely hidden and Tax free.

I get to pay my debt off cheaply and might earn ebucks on it... The downside is then I become a skivy, whenever she needs money I have to jump, I will have to be the administrator of this account for the rest of my life(or hers). Its been a pain before but I think the debt situation needs to be fixed. Its partly mismanagement on my part - with some extra costs that have sprung up.... and FNB just being really useless.

The risk is really on her though. She has to trust me completely and if anything happens to her the money is mine. She is the kind of person who will put something like this in her will, she made us add an amendment to our will when we loaned the deposit for our house. Other than that it should be really easy and Ill just have to be nice to her.

Yay or nay ?
 
If the 35k goes to repay your CC, where does the 35k in the tax free savings account come from?
 
if you need the money what other options do you have?

if you don't need the money then why create problems for yourself?
 
themba990 said:
If the 35k goes to repay your CC, where does the 35k in the tax free savings account come from?
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I pay it in there at R3k pm until its R38k

EDIT: it will be her money that I look after, if she needs money in a rush I will have to transfer or pay her.
 
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saturnz said:
if you need the money what other options do you have?

if you don't need the money then why create problems for yourself?
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Been battling with this for a while as I wanted to clear the debt myself but its not happening.
I have reduced a few things and cut back here and there but there are always extra costs coming up. My increase was terrible this year and I have tried moving jobs but its a bad time.

The other options I have are :

1: Get a personal loan with less interest than my CC - Huge risk with this though.
2: Sell my car and get something older and cheaper - Might still have to do this but need the car and there is additional risk that an older car could cost me MORE. Also selling my car would also incur loss - Its paid off in 3 years and If I stick it out I would free up a lot of cash, as a side I'm also considering clearing the car debt with her... but that is like R100k and could make things complicated.
3: Borrow from my parents - They are not flush but would lend at a fair rate. I'd rather not do this as they don't need the risk. As it is I could end up looking after them if they hit hard times.
 
Nerfherder said:
Been battling with this for a while as I wanted to clear the debt myself but its not happening.
I have reduced a few things and cut back here and there but there are always extra costs coming up. My increase was terrible this year and I have tried moving jobs but its a bad time.

The other options I have are :

1: Get a personal loan with less interest than my CC - Huge risk with this though.
2: Sell my car and get something older and cheaper - Might still have to do this but need the car and there is additional risk that an older car could cost me MORE. Also selling my car would also incur loss - Its paid off in 3 years and If I stick it out I would free up a lot of cash, as a side I'm also considering clearing the car debt with her... but that is like R100k and could make things complicated.
3: Borrow from my parents - They are not flush but would lend at a fair rate. I'd rather not do this as they don't need the risk. As it is I could end up looking after them if they hit hard times.
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tricky one that, sorry to hear the situation

they say never to lend to family, so I guess the opposite of that is to definitely borrow from family, and if its the MIL then double plus

given your options I would say yes, but if you want minimal fuss just make sure you have sufficient funds to pay
 
just by the way the loss on your car will just get bigger, at some point you will have to sell it since new cars are built to be obselete

if you have a working knowledge on cars, old second hand cars can save you a fortune
 
Grubscrew said:
I am I missing something, a lot of risk and little reward?
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The reward is massive for me, I might not be able to clear my debt otherwise.

Only risk for me is either I get in more debt and have to service that as well or if it becomes an issue in the family.
She carries the risk but will make more money than in a standard investment and hold something over my head, which she will love.
 
Its a good deal

she gives u 35k cash upfrnt to close/settle your debts - you pay her backmonthly - into her taxfree savings account @R3k per month until its settled :)
 
Lots of trust involved. Its great when families can work together like this. If you aren't going to run away with her money it's a win-win
 
Aren't you going to open a Tax-Free Savings account soon?
Keep in mind that you'll be left with (500-38 = 462) on your end.
 
From experience, my personal take on this is you will likely screw your MIL over in the end, unless you really get your finances in check.

That kind of credit card debt, especially if its been going for a while, is from habit...more specifically bad habit spending. And because its from habit, if you end up paying it off with your MIL's money, you'll feel like you can now spend again on your CC...but you'll tell youself you're gonna spend responsibly. But then...the bad habits crop up, you can't settle it every month and convince yourself you'll do it next month, but you'll just keep accumulating more debt on the CC than you can handle. Eventually you'll be another R35k in debt, and still have the original debt with your MIL.

Point of this hypothetical story, is that you NEED to get your finances sorted, and fully under control. You need a proper budgeting strategy, something that tracks your spends in real time, like YNAB or similar application. Cut up that CC perhaps?
Think long and hard whether your spending is really under control before entering something like this with anyone, especially family.
 
Cicero said:
From experience, my personal take on this is you will likely screw your MIL over in the end, unless you really get your finances in check.

That kind of credit card debt, especially if its been going for a while, is from habit...more specifically bad habit spending. And because its from habit, if you end up paying it off with your MIL's money, you'll feel like you can now spend again on your CC...but you'll tell youself you're gonna spend responsibly. But then...the bad habits crop up, you can't settle it every month and convince yourself you'll do it next month, but you'll just keep accumulating more debt on the CC than you can handle. Eventually you'll be another R35k in debt, and still have the original debt with your MIL.

Point of this hypothetical story, is that you NEED to get your finances sorted, and fully under control. You need a proper budgeting strategy, something that tracks your spends in real time, like YNAB or similar application. Cut up that CC perhaps?
Think long and hard whether your spending is really under control before entering something like this with anyone, especially family.
Click to expand...

Yes, I have kicked off that process. I have gone through all my debits trying to reduce by R100 here and there and im using a budgeting app now to see where its all going... depressing.

The debt repayment is what is pushing me over the limit every month though and cutting the credit card up may well be the solution.
 
Tax-free savings should absolutely not be used for something like this. What is withdrawn from them cannot be replaced within the tax-free environment.
 
Nerferder, personally I'd say don't do it. Rather look (again) to see if there are personal expenses you can cut back on that will help you at least start whittling away at that debt slowly.

Just because you're not paying off your debt quickly enough, don't be discouraged. I've been paying off various debts for all my adult life, and I still am.

That's life: some debt emerges from crises that you had no control over, some of it emerges from bad decisions on your part (and we all make those) and some just emerges because you rationally worked out that the pain of the debt would be outweighed by whatever it was you got with it (and sometimes that actually IS the case).

I've tried pretty much everything with debt: consolidating two credit cards into one credit card, shifting credit card debt into an overdraft instead, trying out some new debt on a revolving loan that forces you to pay it off. All of that is sometimes just like moving deck chairs around on the Titanic.

These days I focus on increasing my salary regularly to stay ahead of inflation (I've tended to change jobs every two years and negotiate hard in interviews for better salaries - it is your one good chance to do it) and simply (doh) not incurring new debt. I'm not at Mr Money Mustache levels of frugality in my personal life, but I've got an actual plan (on a spreadsheet and all) that will get me debt-free in the next two years (realistically). For me, that's a big win.

All of the above is just a long story to say one simple thing: I truly understand what it feels like, and I'd advise not going down the family road. Money was THE determining factor that broke a relationship with one of my uncles permanently (or rather it ended up revealing who he really was), so I wouldn't risk it. Also, whatever sort of deal you strike with your family member, you WILL end up needing more money in the future and you need to be self-reliant - when your debt spikes you don't want it to be your family member paying for those spikes or even seeing them.

R35 000 in debt ain't that bad, trust me. I've been a lot worse before and clawed my way out of the abyss by my bloody fingertips. It's something that makes me proud. Yes, I screwed up and I've owned my mistakes and spent my money how I wanted to and carried the pain and found a solution ... by myself, for myself.

Financial matters are ultimately just a reflection of what's going on in our lives personally, so my advice would be don't outsource your personal pain to family. Not unless you're seriously screwed and needing a bail-out or you're on the street. If all you're trying to do is save interest, take it on the chin and see the interest as the cost of being stupid in the first place.

There ya go, hope something there helps.
 
Foxhound5366 said:
Nerferder, personally I'd say don't do it. Rather look (again) to see if there are personal expenses you can cut back on that will help you at least start whittling away at that debt slowly.

Just because you're not paying off your debt quickly enough, don't be discouraged. I've been paying off various debts for all my adult life, and I still am.

That's life: some debt emerges from crises that you had no control over, some of it emerges from bad decisions on your part (and we all make those) and some just emerges because you rationally worked out that the pain of the debt would be outweighed by whatever it was you got with it (and sometimes that actually IS the case).

I've tried pretty much everything with debt: consolidating two credit cards into one credit card, shifting credit card debt into an overdraft instead, trying out some new debt on a revolving loan that forces you to pay it off. All of that is sometimes just like moving deck chairs around on the Titanic.

These days I focus on increasing my salary regularly to stay ahead of inflation (I've tended to change jobs every two years and negotiate hard in interviews for better salaries - it is your one good chance to do it) and simply (doh) not incurring new debt. I'm not at Mr Money Mustache levels of frugality in my personal life, but I've got an actual plan (on a spreadsheet and all) that will get me debt-free in the next two years (realistically). For me, that's a big win.

All of the above is just a long story to say one simple thing: I truly understand what it feels like, and I'd advise not going down the family road. Money was THE determining factor that broke a relationship with one of my uncles permanently (or rather it ended up revealing who he really was), so I wouldn't risk it. Also, whatever sort of deal you strike with your family member, you WILL end up needing more money in the future and you need to be self-reliant - when your debt spikes you don't want it to be your family member paying for those spikes or even seeing them.

R35 000 in debt ain't that bad, trust me. I've been a lot worse before and clawed my way out of the abyss by my bloody fingertips. It's something that makes me proud. Yes, I screwed up and I've owned my mistakes and spent my money how I wanted to and carried the pain and found a solution ... by myself, for myself.

Financial matters are ultimately just a reflection of what's going on in our lives personally, so my advice would be don't outsource your personal pain to family. Not unless you're seriously screwed and needing a bail-out or you're on the street. If all you're trying to do is save interest, take it on the chin and see the interest as the cost of being stupid in the first place.

There ya go, hope something there helps.
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You are 100% correct with all your points.

I have already made changes with my life and I'm going to carry on. Taking this loan is a short cut but I have weighed it up and I think its the better option. Also... this quite hard to explain but taking the loan from the MIL might actually benefit our relationship. I already see a change in her, she likes that I asked her and unfortunately she likes the control. Its improved the communication between us and it makes her feel like I'm including her.

So yes, I decided to take the loan. She said no at first because of "cashflow" but then changed her mind few days later and transferred. She wanted to know how I got all this debt but then turned it in to a lecture which I graciously took.
The fact is that she has been the driving force between a lot of our financial decisions because she will give her opinion and pester us until we do what she wants. This way she can actually see the consequences.
 
So you think I'm 100% correct on all my points, and your conclusion is to go against my advice? *shrugs* Good luck mate, please let us know how it goes.
 
Why a tax free savings account specifically? That seems more suited for long term investments, where you benefit from tax savings over 10+ years, compounded. Why not just a money market linked account or something?
 
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