When Matt from Bismarck, North Dakota, called into The Ramsey Show, he asked if his mom was responsible for his dad’s credit-card debt.
His father, now in assisted living, racked up $18,000 on an American Express card. While Veterans Affairs assistance covers some of his residential care, it’s not enough to cover interest on his debt.
Don’t miss
- I’m 49 years old and have nothing saved for retirement — what should I do? Don’t panic. Here are 6 of the easiest ways you can catch up (and fast)
- Robert Kiyosaki warns of a ‘Greater Depression’ coming to the US — with millions of Americans going poor. But he says these 2 ‘easy-money’ assets will bring in ‘great wealth’. How to get in now
- Gain potential quarterly income through this $1B private real estate fund — even if you’re not a millionaire. Here’s how to get started with as little as $10
That leaves Matt’s 75‑year‑old mom doing her best to pay interest on her husband’s debt. She has no savings and works part-time, three days a week.
Neither Matt nor his sister have the means to eliminate their father’s $18,000 debt. Their parents’ home is paid off and valued at $700,000, but their mom does not want to sell and move.
"In order to save the house, [you’re] going to have to deal with Amex,” Dave Ramsey said, adding that otherwise, “They’re going to just drive her bananas.”
The family’s financial crossroads
Theoretically, American Express could place a lien on Matt’s parents’ home to recover the debt and force a sale — driving Matt’s mother out.
But Ramsey said credit-card companies like American Express rarely take this kind of action, saying there’s less than 0.25% chance of it happening.
Read more: Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it
The real concern, Ramsey said, is that Amex’s collections department will harass Matt’s mother relentlessly to get more money.
"They are absolute buttholes,” he said. “They are horrible to deal with.”
Mitigate the damage of parental debt
To shield Matt’s mom and his parents’ home, Ramsey laid out this plan:
For six to nine months — or until the debt “goes bad” — Matt’s mother should stop making any payments on the credit card and refuse to engage with collectors. Ramsey said that means she should not pick up the phone or respond to any inquiries, email or otherwise. During that time, Matt and his sister should save a total of $5,000.
At the nine-month point, or whenever the debt has “gone bad,” Matt and his sister should offer American Express a $5,000 lump-sum settlement (no more) to settle the debt once and for all.
Ramsey added that Matt and his sister should refuse to pay off the debt until Amex agrees to the $5,000 settlement terms in writing — not just over the phone.
If you find yourself in a similar situation, here are some things you can do:
- Know your rights. Unsecured debts don’t legally attach to someone who didn’t co-sign.
- Separate finances. Keep your own credit accounts separate; avoid adding additional liability.
- Document everything. Request written settlement terms. As Ramsey said, “If it’s not in writing, it didn’t happen.”
- Assess legal exposure. Find out whether creditors can file a judgment lien and under what conditions. This will vary from state to state and depend on your specific circumstances.
- Limit communication. Harassment by collectors is regulated. File complaints if needed under the Fair Debt Collection Practices Act.
- Plan liquidity strategy. Even if you have no savings, consider offering up a lump-sum settlement to eliminate your parent’s debt with available equity and/or family contributions.
- Seek professional help. Credit counseling firms and elder law attorneys can aid in navigating intergenerational debt.
What to read next
- JPMorgan sees gold soaring to $6,000/ounce — use this 1 simple IRA trick to lock in those potential shiny gains (before it’s too late)
- This is how American car dealers use the ‘4-square method’ to make big profits off you — and how you can ensure you pay a fair price for all your vehicle costs
- Here are 5 ‘must have’ items that Americans (almost) always overpay for — and very quickly regret. How many are hurting you?
- How much cash do you plan to keep on hand after you retire? Here are 3 of the biggest reasons you’ll need a substantial stash of savings in retirement
Like what you read? Join 200,000+ readers and get the best of Moneywise straight to your inbox every week. Subscribe for free.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
Related Posts
