Choose Your Own Adventure with Debt
Many of the debts that we all have today are not an adventure you can choose after the fact, student loans for school and a mortgage for a house are just that. Very rarely do you get a chance to choose your own debt. In some cases you may refinance a credit card with a consolidation loan or balance transfer, but for the most part you have chosen your debt adventure. In a rare case I have the opportunity to choose my own debt adventure and as you can imagine it’s probably not going to be very fun. Let me share with you the details and choices available.
Earlier in life I put myself in a position where I needed to borrow a large amount of money, a family friend knowing how much this would help me offered to take out a loan on my behalf with the expectation that I would pay them back over time, no contracts were signed, but I would put my life in their hands as far as a trust factor. The loan was taken from their home equity at a low rate and over the years I have paid back everything but around $15,000 approximately to keep the numbers round and easy. Each month I send my family friend a check for $200 and they apply the payment to the loan, I periodically ask for statements and just recently asked for online access since they don’t use anything with online banking. This personal loan has never had a real priority in my life and financial picture, it never shows up on my Mint or Personal Capital accounts, I do have it listed in my personal spreadsheet, but it truly is an afterthought in my big financial picture.
Choose Your Own Debt Adventure
The current debt is a home equity loan which is at a fixed 4.51% at $15,0000, I make monthly $200 payments to a loan minimum payment that is around the $150 mark. I’m not a tax adviser but I’m making the assumption that the interest on this loan can be written off as a tax deduction each year for their taxes, but maybe not since the money was not used for home improvements, regardless this sums up Debt #1.
Unfortunately in our choose your own debt adventure we have options to choose from. The family friend has a loan that has a 17% interest rate at around the same $15,000 amount with a $300 minimum payment. I am not responsible for this loan amount, but as you can see the amounts are similar and since this loan is from someone who helped me out in a time of need, I am much more inclined to help pay this loan regardless of interest rate, in fact I would consider this being more of a priority for that reason.
This loan does not exist today. This is a loan that I would take out personally to my name and pay off either Debt #1 or Debt #2. It could be a number of loan types including a personal loan, balance transfer to a credit card, home equity line/loan of credit, or just about anything in between. I would assume the percentage would be somewhere between 5-10% and would be under my name and my responsibility. My credit score and debt to income ratios would most likely get the best percentage available if that factors in to your adventure choice. This of course would cancel any debt owed to the family friend and have the debt lay squarely in my name and responsibility.
Would be a combination of Debt #1 and the 4.51%, but once the amount of $15,000 is paid off, I would still send $200 for the remainder of the time they are on this earth. Consider it the annuity of Even Steven Money, while I don’t think it will upgrade their living to Yachts and trips to Buenos Aires, it would be a small token of appreciation for what they have done for me. The family friend is closing in on retirement age, so the payment could be for a short period of time or possibly for the next 30 years.
One more factor that I should throw out there is the time frame, while I have not set a goal today for the payoff, but the range would be 12 months if I focus on the debt and 30 months if take my sweet time, so in dollar amounts that is about $1250 (12 months) and $500 (30 months) both of which are attainable. Looking at all of the debt adventures, which adventure makes the most sense financially and psychologically is a tough call, so I figured why not ask the people.