This & That: Husbands & Wives Edition

Amanda wrote:   Ok, I'm pulling up my socks.  I watch your show, and I've got your book … and they've just cancelled my credit card!  My husband still has credit cards … If he adds me as an authorized user on his card, does it make it a joint card?  And will that improve my credit score at all, immediately, or in time?  We are about to pay it off and start again, so to improve my credit score with his card, assuming it works, is it best if I use the card for small things and make sure to pay them off right away or just not use the card?

Gail says:  Being added on your husband's credit cards won't do a thing for your credit history since everything will still be reported in his name.  You must get your own card.  Start with a secured credit card (my site has info, just go search for "secured credit card") and then do exactly what you're suggesting:  use the card regularly and pay it off right away.  It'll take a year or two, but you'll get your credit rating back.

C wrote:  Hello Gail -

Thank you so much for your advice.  You have inspired us to be much more hands-on with our finances. If our plan works (which it has been), we will be debt-free except for our mortgage by December 2010! The same cannot be said for my in-laws, however.  My FIL had a heart attack about seven years ago and although he is medically "able to work"; he is able to work only at menial jobs and not for long periods of time.  He went from earning a six figure income to barely minimum wage.  The MIL has continued to work a clerical job that does not pay a lot.  Over the past few years, they have managed to rack up in the neighbourhood of $200,000 of debt including a $120,000 HELOC that varies with prime rate (which as we know is on its way up).  The MIL is primarily responsible for this debt, as she continues to fund things like her daughter's education, her daughter's ridiculous $30,000 wedding, and other miscellaneous frivolous expenses.

I did a budget for them last year when their debt was around $160,000.  Since $40,000 of this debt was high-interest credit cards, I advised them to go to a bank and ask to either take out a mortgage on their house, or expand their existing $120,000 HELOC to consolidate this high-interest debt.  When they went, they were denied by the bank because of their low credit rating and because the FIL did not have steady employment.  They were told to come back after he could prove that he had been with the same company for three months.  Although he secured employment for a period of about 7 months, during that time they did not bother to go back to the bank to consolidate.

A year after my husband and I first got wind of their financial troubles, the situation is worse.  The spoiled daughter, despite knowing of her parent's financial hardships, continued to demand her dream wedding, and the MIL stupidly agreed to pay for it.  Now their credit is tapped out, and we have been told that there is a $400,000 lien on their house from the bank that gave them the HELOC.  Their situation is so bad, that just making the minimum payments on their loans makes an almost 50% dent in their net monthly income.  Many bills have gone to collections.

My question is:  they have already hinted that they were going to be asking us to borrow $10,000 (we do not have this money – we would have to borrow it as well, but we can because we have good credit).  We absolutely do not want to lend them money, co-sign a loan or have anything to do with them financially because we fear for our own financial health, however, my husband feels obligated to help them, though, because they are family.  How do we say no?  Is there any other way we can help them without sacrificing ourselves?  What are their options?  They are 52 years old.  The MIL will have a pension from her work in 4 years and the FIL has approximately $650,000 in RRSPs that will "mature" when he is 55.  Regardless, their monthly debt commitments are so great that even with the RRSP and pension income, they will be struggling.  Using all the RRSP money to pay off the debt would result in a big tax hit, correct?  Is there anything that I can do on their behalf without having Power of Attorney to organize their finances with banks?

Please help – I don't know who else I can ask.  I have to get involved because as you can see, they are all completely incompetent with money.  I know that seeing his parents in this mess is a huge stress on my husband and I want to help the family in the best way possible.

Thank you for any advice you can offer.

Gail says:  You absolutely should NOT in any way get involved in lending money to or co-signing for your in-laws.  The reality is that they will likely have to sell their home and downsize considerably to get rid of their debt.  You can't make 'em do it and they'd have to GIVE you power of attorney, which in likelihood they won't, so don't even bother with that.  Cashing out the RRSPs would be a disaster tax-wise and for the future.

If they sell and downsize or rent, and they get on a budget lickety-split, they can still save themselves from a horrible retirement.  But they have to bite the bullet now and do whatever it takes to get to debt-free and to learn to live within their means.  Taking more credit is not the answer.

I'm sorry you and your husband are having to live through this.  Very often when people experience a significant change in their incomes, they can't come to terms with the new lifestyle they must embrace, keep living large, and end up in debt.  But you can only help if they will let you.

I suggest you sit down and — you, your husband and his parents — and make it very clear that at this point you're willing to help them sort this out, but you have no money for them and that this must either be taken care of now, or they are on their own later.  At a point not too far down the road, this is not going to be solvable without bankruptcy.

B wrote:  My wife and I have recently tried out the money jar system again with some slight variations this time.  Before, I allowed her to run the budget since she is home most of the time and does the grocery shopping.  We stopped it because there was too much "borrowing" from other jars and the system seemed to have failed.  I realize now that the system didn't fail, we did.  Unfortunately, I recently caught her with two "secret" maxed out credit cards that she has hidden from me for the past six months.  I immediately severed her relationship with those cards and the family funds and enacted the jar system with extreme prejudice.  All of the credit cards have been cancelled, bank cards have had their pins changed, and passwords changed on internet banking.  This is the 3rd time she has done this to me but the amounts are getting progressively worse ($2000, $1300, $2500 on credit cards).  I want to teach her the value of money and that credit cards are not "money that someone has".   Her parents, sister and best friend all spend money this way and are all in (I think) serious trouble with credit cards with no savings for retirement or emergencies.  They think my reaction is extreme and I should lighten up and give control back to her.

I am very tight with money and my family is the same way.  I believe that you should research the big items that you buy (computers, cell phones) and wait at least a month after deciding to buy big ticket items.  Never on impulse.  I also never donate money, just blood and used clothes to Canadian Blood

Services/Goodwill.

I want us to approach the money situation together but have a hard time trusting her again.  What can I do?  Should I trust her again after she has burned the family's funds so many times?  Is there a 12 step program for spend-a-holics?

Gail says:  It's tough when you love a person and your money personalities are at the opposite ends of the extremes.  And it's tough dealing with the sense of betrayal when the person you love deceives you. If your wife is a compulsive shopper, it may be that she needs help from a professional or group.  Debtors Anonymous is an organization that tries to help individuals get out of debt and stop incurring new debt.  You can search the web to see if there is a program near you.

If your wife is trying to "keep up with the Joneses"… her family and friends … it may be that she is insecure about herself and needs to find things she can feel a sense of accomplishment doing.  Maybe she's bored and is shopping to fill the hole.  You need to sit down together and talk about this with compassion and an open mind.  Don't jump down her throat, no matter what she says.  Just listen, acknowledge how hard this is for her and tell her you love her.  But talk.  And keep talking.  Find out what is missing and how else (other than shopping) you can work together to fill the hole.

You should NOT give her back the control over the money until you have a solid plan in place.  And since she can apply for credit and get it without your knowledge, you should make it clear that this is a make-it-or-break-it part of your deal.  I do not think your reaction was extreme.  I think you have every right to be worried.  It is a big deal to lie to your mate and run up debt you can't afford to repay. And if you have kids, you're putting them at risk too.

But how you deal with this, how you say things, will be the difference between being "too hard" and being loving and compassionate.  You can love her to bits, hug her and tell her how much you want to help.  If she's upset because you are "too tight with the money", then initiate an "allowance" system where you each get a specific amount you agree upon that you can blow any way you want, no questions asked.  It may be $100 a month, more or less, depending on your financial situation.  It can't be ALL your way, Mister Tightwad.  You have to meet her half way.

J wrote:  When adding up all our debt, do we include my husband's child support obligation since it comes directly out of his pay check every payday?  It is not part of his net that gets deposited into the bank.  Same with health/dental/life insurance, the premiums come directly out of our pay checks and are not part of our net in the bank.  And how much and how are we suppose to put in savings and our emergency fund?   I know that's more than one question, but I'm trying real hard to follow your plan and want to make sure I do it right. Thank you!!!!

Gail says:  I can tell from your letter that you really want to make this work.  Let's take your questions one by one.

To keep things simple, I'd not include the child support obligation, and just use the net amount going into the bank.
You could do the same thing with the health premiums, but make sure you still slot something into medical for over the counter stuff and to take care of the co-pay if you have one.
How much you save depends on how much you already have and how much you want to have.  You can start with 10% and then fine-tune from there.  My new book, Never Too Late, deals with this in detail.
Aim to have six months of essential expenses saved for an emergency.  You may only be able to begin by saving $100 a month, but work up to more when you find places to cut back or make extra money.

You've taken a big step by taking control.  Don't get disillusioned if everything doesn't immediately fall into place.  Have some patience.  Be determined.  I know you can do it.

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