Monday, October 8, 2007

Debt horror story

MSN published a letter to the editor, a real debt horror story. Just in time for the holiday season. It hit close to home because my own parents did not manage their finances very well.

Her parents have gotten themselves into a situation where I just don't see an easy resolution. With $71,000 left on their mortgage, they refinanced and took out $100,000. … They did it again and invested $100,000 in a business venture. ... They then decided to take out a home equity line for $52,000. They have over $20,000 in credit card debt at 16 percent. They put their car up for collateral for a loan for $15,000. They borrowed $22,000 from a family friend, $9,000 from me, and who knows what else. ... They have no life insurance, $18,000 in one 401(k), and are nearing retirement 58 and 62 years of age. Their bills are twice as much as their income.
Adding it all up, we see that they have a mortgage/equity loan of $323k, $20k on credit cards, a $15k car loan, and $31k in personal family "loans". All told almost $400,000 in debt. These parents, in the 50-60 age bracket, seem to be in a generation of debtors who embraced credit and leveraged everything to support an inflated lifestyle. Unless their house is worth half a million dollars, they have little hope of recovering, and zero hope of retiring - especially when you look at their paltry retirement fund.

It breaks the heart to hear about such a couple, especially when you can relate. "This could be my folks!"...but it is a hard lesson that we need to pay attention to, so that we don't end up in the same abysmal place.

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