Maximizing Your Generosity
It's always a great time of year to do something financially helpful for a family member - likely a child or grandchild - who's charged him/herself into dangerous financial waters and is struggling hopelessly to survive. They're getting calls at home, school and work from aggressive collection agencies and may even have been sued for amounts that, with double-digit interest rates and fees, are twice or more what they actually charged.
I know, they largely deserve to toss and turn in the mess of a bed they've made for themselves, and I'm sure you'll make sure they understand that whether you decide to help or not. I'll leave to you how to drive home that lesson and try to keep history from repeating itself, but one proven method would be to bring a strong pair of scissors to bear on the plastic culprit.
The problem is that even if the lesson has been learned, the debt remains and continues to grow, often at a rate alarmingly faster than your hapless debtor can make payments. In fact, just sending the minimum payment on the statement will never reduce the principal balance, and what's owed will be even larger after 20 years of those token installments.
OK, so here's where you come in. No doubt you're familiar with the concept of multiplying the impact of your charitable donations through matching gifts. This is a chance to do the same kind of thing for your financially-reckless offspring.
Here's how it works. Your youngster (of 20, 30, 40 - it can happen at any age) owes $5,000 on a credit card that he/she just can't handle, and the wolves are closing in. You sit down with them at the kitchen table, and with phone in hand you dial the number on the urgently-worded statement to discuss the account with a representative. Once you make it through the minefield of automated choices, you eventually get to a live person. This is what you say: "I'm sitting here with my son/granddaughter who owes your company $5,000, but can't pay it. You've been calling and writing them for months trying to get payments they have no way of making, largely because the interest is now more than the original charges. I have no obligation whatsoever to get involved, but I'm willing to send you $2,500 within 48 hours if you accept (and confirm by fax or e-mail) that amount in full settlement and then close the account. If you don't accept this offer, you can continue to pursue Johnny for years to come and likely never receive more than a token amount, and that's even if you go to court and get a judgment for everything you're owed. Do we have a deal?"
You may be talking with a collection agency or a lawyer's office. Whoever it is, make sure you get someone on the phone who can make a decision. The same approach will work with all of them, because they've all got a Whitman's sampler on the wall that says, "A buck in the hand is worth a judgment for twice that much." You may not get them to take 50% of what's owed, but you should be able to get them down to 60%. The key to your best result is that you're willing to walk away and let them do their worst, which they know from long experience is going to be ineffectual at best. You understand this concept, too. You know you only get your best deal on a new car when you're willing to walk out of the dealership and go somewhere else.
So as I said, you'll multiply the impact of your generosity by settling a large debt for a modest fraction of what's owed. Your offspring will be highly impressed with your negotiating skills and you'll help them out from under a rock they couldn't have lifted on their own. They may even thank you.
Lastly, while any time of year is good for this strategy, year-end is the perfect time of year to strike. That's because all these companies are trying to close their delinquent accounts by December 31. If they can book even 50%, they'll look like heroes in the office - in fact, it may be worth a bonus to them.
Let's hope my assumptions about your family's financial responsibility are wildly misplaced and that they're all pinching their nickels and dimes. If not, though, here's a fool-proof way to help and to teach a valuable lesson.
Posted 12/26/2013 - Misc
I know, they largely deserve to toss and turn in the mess of a bed they've made for themselves, and I'm sure you'll make sure they understand that whether you decide to help or not. I'll leave to you how to drive home that lesson and try to keep history from repeating itself, but one proven method would be to bring a strong pair of scissors to bear on the plastic culprit.
The problem is that even if the lesson has been learned, the debt remains and continues to grow, often at a rate alarmingly faster than your hapless debtor can make payments. In fact, just sending the minimum payment on the statement will never reduce the principal balance, and what's owed will be even larger after 20 years of those token installments.
OK, so here's where you come in. No doubt you're familiar with the concept of multiplying the impact of your charitable donations through matching gifts. This is a chance to do the same kind of thing for your financially-reckless offspring.
Here's how it works. Your youngster (of 20, 30, 40 - it can happen at any age) owes $5,000 on a credit card that he/she just can't handle, and the wolves are closing in. You sit down with them at the kitchen table, and with phone in hand you dial the number on the urgently-worded statement to discuss the account with a representative. Once you make it through the minefield of automated choices, you eventually get to a live person. This is what you say: "I'm sitting here with my son/granddaughter who owes your company $5,000, but can't pay it. You've been calling and writing them for months trying to get payments they have no way of making, largely because the interest is now more than the original charges. I have no obligation whatsoever to get involved, but I'm willing to send you $2,500 within 48 hours if you accept (and confirm by fax or e-mail) that amount in full settlement and then close the account. If you don't accept this offer, you can continue to pursue Johnny for years to come and likely never receive more than a token amount, and that's even if you go to court and get a judgment for everything you're owed. Do we have a deal?"
You may be talking with a collection agency or a lawyer's office. Whoever it is, make sure you get someone on the phone who can make a decision. The same approach will work with all of them, because they've all got a Whitman's sampler on the wall that says, "A buck in the hand is worth a judgment for twice that much." You may not get them to take 50% of what's owed, but you should be able to get them down to 60%. The key to your best result is that you're willing to walk away and let them do their worst, which they know from long experience is going to be ineffectual at best. You understand this concept, too. You know you only get your best deal on a new car when you're willing to walk out of the dealership and go somewhere else.
So as I said, you'll multiply the impact of your generosity by settling a large debt for a modest fraction of what's owed. Your offspring will be highly impressed with your negotiating skills and you'll help them out from under a rock they couldn't have lifted on their own. They may even thank you.
Lastly, while any time of year is good for this strategy, year-end is the perfect time of year to strike. That's because all these companies are trying to close their delinquent accounts by December 31. If they can book even 50%, they'll look like heroes in the office - in fact, it may be worth a bonus to them.
Let's hope my assumptions about your family's financial responsibility are wildly misplaced and that they're all pinching their nickels and dimes. If not, though, here's a fool-proof way to help and to teach a valuable lesson.
Posted 12/26/2013 - Misc