When Mom and Dad are in “Debt” Trouble
My friend called me last week in apparent distress about his retired mom and dad. He said his family had a little meeting over the weekend and they found out that their parents have four credit cards with overdue payments amounting to P450,000. With his permission, let me share his story with you.
They owned an old house in the province and another one that was being constructed courtesy of my friend and his two siblings. Two of them work here in the country while one is working as an expat Filipino. The one working overseas left his child in the care of the parents. Together, all three siblings send home P30,000 monthly for the retired parents’ living expenses.
An allowance of P30,000 monthly for two adults and one child in the province living in their own home is not something to sneeze at. So how could they have charged so much money to their credit cards?
I know you know how. Refurnishing the new home, splurging on the apo (grandchild), the many road trips they took as they enjoy their “newly retired” status all added up to P450,000—and who knows how much more if they didn’t talk about the situation openly. They didn’t want to let the children know at first, hoping they could fix things by themselves. But now, they had to come clean. The banks are knocking.
“They are good people who made bad decisions,” my friend told me.
Bailing out parents, for some, is like going through a backyard full of land mines. You think you’re familiar with the territory, but a sudden misstep could cause a lot of damage. After all, they used to call the shots.
First things first, remember that it’s not all about the money. That’s, in fact, the easier part of the equation. It’s the psychology, the needed changes in lifestyle and the communication strategy that many people in this situation first have to worry about. Why? Because no matter how brilliant your strategies are to pay down the debt, if they don’t like it, sorry kid.
So you need them to agree and to agree with you wholeheartedly. Once that’s done, you can try the following strategies:
1. Cut the cards. First order of the day is to stop the wanton swiping. If that means having them agree to cut the cards, then that’s the best strategy.
2. Debt substitution. Find other sources of funds that don’t charge 42% per annum in interest. This may include a personal loan from the children (with interest but lower than 42%), loans from the Social Security System (I will not recommend borrowing from the Government Service Insurance System) or salary and personal loan from a thrift bank. Whatever you do, do NOT borrow from a loan shark in desperation!
3. Sell stuff to pay off debt. This will be tough, but it’s important for everybody to feel the pain so that the lesson is learned. If it means going without hot water or sacrificing the car, then so be it.
4. Pay down the debt as aggressively as you can in the next six months. It is important that all accounts are made current, so divide any cash between all four credit cards. The objective is to fix your parents’ credit record so that the bank can see that they are doing your best to settle the debt.
5. Visit a credit officer and let them know about the situation. We know that this may be a long shot—appealing to a credit officer for restructuring–but there’s no harm in trying.
Any more tips you can share?