I Just Paid Off My Mom’s Debts

By | July 17, 2021
debts

My mom is turning 67 this year. She still has to work and she works hard. It’s difficult for her to make ends meet. If nothing changed, she probably would be well in her 90s before she ever paid off her debts. That’s no way to treat the world’s greatest mom! So, I decided to go home and give my mom an early surprise birthday gift. I decided to pay off all of her consumer debts. She has sacrificed for her kids throughout the years. Though it was hard, I told her it was time I sacrificed for her. So that’s what I did. In this post I will go over what debts I paid off, how I was able to surprise her, my concerns, her current state of finances, and the unexpected surprise my mom had for me! Let’s get started.

That’s no way to treat the world’s greatest mom!

Debts I Paid Off

My mom had 6 credit cards and a loan. Each of those cards had a balance. In short, she had a balance from Walmart, Quick Silver, Sam’s Club, Amazon, JC Penny and a Credit Union. She also a loan from Discover which was acquired to consolidate her previous debts! More on this later.

The breakdown of her debts are as follows:

You saw that right. She had $2,093.86 in credit card debt. Not bad. First of all, that’s a lot of cards to keep track of. It’s clear that my mom likes to spend. But, I would have been happy if that was all the consumer debt she had. Unfortunately, she also had one more debt that was a monster. Earlier this year, my mom took out a consumer loan to consolidate all the previous debt she had. That loan was from Discover. The total remaining amount of the loan was a whopping: $11,376.22. So, the total debt my mom had was $13,470.08. Her total debt was broken down as follows:

It was tough to pay that money. However, I thought it was worth it. I really liked the fact that the total debt was under $15,000. This allows us to avoid paying a gift tax. According to the Wall Street Journal’s article entitled, Estate and Gift Taxes 2020-2021: Here’s What You Need to Know, “For both 2020 and 2021, the annual gift-tax exclusion is $15,000 per donor, per recipient. Thus a giver can give anyone else—such as a relative, friend or even a stranger—up to $15,000 in assets a year, free of federal gift taxes.” Ultimately, the amount was high, but it could have been worse.

How I Surprised My Mom

I wanted this to be a surprise. So, here’s what I did. I told my mom I would be coming home to help her with her bills. This wasn’t totally out of the ordinary because sometimes, I would give my mom a little bit of money as gifts during the holidays. For example, I might give her $200 as a Christmas gift. It’s not the most original idea, I know. Anyway, my mom was under the impression that I would make one or two months payment on some of her debts. She had no idea that I would be paying them all off.

I first got an idea of how much debt my mom had. I wrote them down on the back of an envelop. And one by one, I started calling the companies and paying them off with her right by my side. She had to give her authorization so they could freely talk to me about her accounts. I got to the Discover loan in the middle of this process and skipped that one! Hahaha! I paid off all the smaller ones, and said I would tackle the Discover loan the next day. She was elated that I helped her with the smaller debts. She still had no idea that I was going to pay off the Discover loan.

The next day I called Discover. I told the customer service representative (CSR) that I wanted to payoff my mom’s debt. The CSR asked a question that seemed weird. She asked why I was paying off the debt so early when the loan was only taken out in January of this year? What??? It was such a weird question! Anyway, I told her that I was giving my mom an early birthday gift. The CSR thought it was great and joked that her birthday was coming up soon. My mom was beyond ecstatic!!! She was totally surprised, very thankful, and really didn’t know what to say. Her reaction was priceless.

My Concerns

Although I paid off my mom’s debt, I recognize that I did nothing to change the financial behavior that got her there. Quite frankly, my mom has declared bankruptcy in the past and still got into credit card debt afterwards. Then, she took out the Discover loan to consolidate the credit card debt, and still got into more debt. It’s easy to say that she is simply undisciplined with money, or that I am somehow enabling her irresponsible financial lifestyle. That very well might be true. However, as I got a closer look at my mom’s income and expenses, it’s pretty clear that she was living off of credit cards.

A. My Thought Process

I don’t care because it’s my mom! I did make it clear to her that this was a one-time thing and that I won’t be doing this again, no matter how high a debt she had. But, I also didn’t want to put any conditions on giving her this money. So, one thought that I initially had was that I would pay off her debt if she went through Dave Ramsey’s Financial Peace University. I also thought that I could do this on the condition that she closes all but one credit card to keep as an emergency. Ultimately though, I determined that my mom is an adult and capable of making adult decisions. I did not want to be in a position of dictating how she should live her life or what she should do with her money. Instead, I did offer suggestions and recommendations, but no conditions or ultimatums.

I don’t care because it’s my mom!

Experts might disagree with my approach, but that’s ok. I just know that my mom didn’t have a financial education growing up, but yet she was able to put food on my table and kept a roof over my head. She struggled through life and has been working very hard. She deserves a financial reprieve, even if it is for a moment, and that is what I aimed to do. That was worth more to me than any financial return on investment.

My Mom’s Current State of Finances

Currently, my mom is consumer debt free. I paid off everything she owed except for the mortgage. The mortgage is a HUGE portion of her take home pay and the last remaining source of her financial stress.

In general, my mom takes home $1000 from Social Security and $1500 a month from her job. So, in total, her income is $2500 per month. Sometimes she works overtime and that helps. Additionally, she gets $450 a month from a tenant who stays at the house, but that is a very temporary situation. It’s unlikely my mom will get another tenant after that one leaves, which will likely be within the next year. The tenant is a family friend so hence the exception. She has NOTHING saved for retirement in retirement accounts. To be fair, she may have about $10,000 saved – so practically nothing. She also has a piece of land that she bought that is also worth less than $10,000. That’s why I said that if nothing changes, she will have to work for a long time just to make ends meet.

Her mortgage payment alone is about $1400 per month! That is too high when compared to the total income she makes. Without going through all her monthly expenses (which we did), it’s not hard to imagine that she really has nothing left after accounting for utilities, gas, food, emergency expenses, etc. Plus, her lack of financial discipline doesn’t help. So, she really was living off credit cards. Metaphorically speaking, she also put her head in the sand not even wanting to know the total amount of debt she had because it was stressful. Trust me, I unfortunately know the feeling.

A. Mortgage Modification and Refinance

My mom has tried for years to either get a refinance or to modify her mortgage in order to bring down her mortgage payment. Her problem was the high debt-to-income ratio. She had a lot of debt and not enough income and so she was unable to qualify. We are hoping that with the debt cleared up, she might be in a position to reduce the monthly mortgage payment. Only time will tell.

My Mom’s Unexpected Surprise

One of my goals has always been to buy a house for my mom so she could live in it, and not worry about the mortgage. However, I didn’t want to do anything that was going to negatively affect my own retirement. Unlike my 4 other siblings, I am not married and I don’t have kids. So, I don’t really have anyone to take care of me when I retire – unless I marry before then. I love my mom dearly, but I have to make sure that I am taken care of as well. The problem is, I am not necessarily in a position to buy a house for my mom right now. Technically, I could, but I have other investment goals I want to accomplish before I buy a house for my mom.

While we were talking during my last visit, my mom came up with an idea that I had rejected in the past. She suggested that she would give me the house, so that she wouldn’t have the obligation to pay a mortgage. Since she was going to be age 67, she wanted to somehow retire (or be able to stop working) at the age of 70 (or before), and she wouldn’t be able to do that with the high mortgage. Although she is not in the best of health, she is generally healthy. But her job, as a CNA nurse, is not the most ideal for someone with her age and health conditions.

A. The House Has Equity

In years past, my mom had made the suggestion for me to take over the house but I rejected it because I really didn’t like the location. Specifically, I only go there to visit my mom. It’s not a place that I would want to live (or visit) and if my mom wasn’t there, I really would never go. Nevertheless, I checked Zillow and the Zestimate for the house was $315,000. More importantly, the mortgage balance remaining on the house is about $130,000!!! So, if Zillow is right (and arguably, it is often not), the house has decent equity in it. My mom bought it for approximately $200,000 and has been paying down on the mortgage for the past 16 years. She had refinanced or done a modification in the distant past, but wasn’t able to get another one in recent years.

Of course, I would get an appraisal and an inspection before making a final decision. I am also looking to talk to a tax professional and a lawyer so that my mom and I can understand the tax and legal consequences of me getting the house at a huge discount. My basic research with Google suggests that there would be adverse tax consequences. Regardless, it may be worth it in the end.

B. The Plan

Assuming the Zestimate is correct, I am intrigued by the idea of taking over the house. During our discussions, we talked about the possibility of me taking over the house and she paying reduced rent for no more than 3 years, and once she reaches 70, she would have no more rent obligations. She would then finally get the retirement that she so badly wants. Of course, she would be trusting me to not kick her out (that would never happen) or anything of the sort. I told her that there are ways to protect her rights to be able to stay in the house. So, for example, she could have a life-estate (I think that’s what its called) such that I couldn’t kick her out of the house even if I wanted to and she would have the right to remain there until she died.

The other potential wrinkle in the plan is that I really want to buy a beachfront condo! I almost bought a condo as detailed in my post I Bought A Beach Condo. However, that deal fell through and I wrote about it in my post entitled I Lost The Beach Condo. Still, I really want a condo on the beach and I’m determined to get one even if it’s the last thing I do.

Part of my concern with simply taking over my mom’s house is that I will incur the obligation to pay the mortgage, and that will affect my own debt-to-income ratio calculations with the banks. Therefore, it may be difficult to get a loan with traditional or conventional financing for a beachfront property under those circumstances. Honestly, it was difficulty anyway because most of the condos I’m interested in are considered to be non-warrantable condos. That being said, getting access to a sizeable equity position may adequately compensate me for the delay in me acquiring beachfront property. Besides, I’m currently working on a plan to accomplish both.

Conclusion On Paying Off My Mom’s Debts

I went home and surprised my mom with an early birthday gift. I paid off all her consumer debts totaling $13,470.08. In turn, she surprised me with a gift of her own. She suggested (again) that I take over her house, which has built-in equity, and in doing so, it would enable her to retire in 3 years or less. No final decision has been made regarding me getting the house. We are exploring the possibility of selling the house and using the equity to downsize her living situation. That’s unlikely to happen for numerous reasons, including the fact that she doesn’t want to move. But regardless of what we come up with, I am encouraged that my mom will be able to retire in 3 years or less.

Paying off her debts was a financial reprieve to her and she was very happy. She was even more happy when the realization sunk in that she would be able to retire. It’s difficult to put into words. Sufficed to say, while money is important, happiness is far more precious! By paying off her debts, my mom was happy and that was worth more to me than anything money could buy.

I love you Mom!

8 thoughts on “I Just Paid Off My Mom’s Debts

  1. SD Growth

    You are a good man Charlie Brown. As a parent, I do not want to be a burden to my kids and its a situation where I’d be embarrassed or ashamed. However you handled it and presented it so well as to avoid those feelings which makes you a great son. Also I would not say your Mom has a spending problem but more of a cash flow problem.

    The house discussion will no doubt be a difficult discussion & decision. By bringing in an unbiased third party via a tax specialist and/or an attorney is a wise move. People tend listen more with someone that does not have a vested interest.
    SD Growth recently posted…Buys and Sells for the Week 7/16My Profile

    Reply
    1. Dividend Portfolio Post author

      Thanks for the kind words SD Growth. The house discussion will be difficult but we won’t be doing anything my mom is uncomfortable with. So, in addition to talking to third party specialists, I am working hard to make sure that I don’t pressure her into doing anything she doesn’t want. I’m looking forward to the day when my mom can truly retire. It’s going to be bliss!

      Reply
  2. Adrian Smith

    Simply put, an amazing read! You are also a wonderful son. I am not sure which way this will work out, but I am positive that it will work out in the best way possible for you both. Keep up the great work, you inspire many, myself included.

    Reply
    1. Dividend Portfolio Post author

      Thanks Adrian. The good news is that we have some time to figure things out, so there is no rush. We’ve pretty much set 3 years as the date for her to retire. By that time, we would have sorted out what we are going to do about the mortgage. Quite frankly, I think we should be able to figure this out by a year’s time. The main question is what order do we do things. But, we shall see. Thanks again for the comment.

      Reply
  3. P2035

    Nice, that what I call a win win 🙂 Helping our moms is whay makes us human right. Good luck with whatever you decide to do.
    P2035 recently posted…2021 Q2 BudgetMy Profile

    Reply
    1. Dividend Portfolio Post author

      Yea. I saw no downsides to doing so and it really felt good.

      Reply
  4. Mr. Robot

    Awesome work DP. It must have been a great feeling to be able to do this for your mom. Hopefully you will work everything out, maybe together with your siblings?

    Reply
    1. Dividend Portfolio Post author

      Yea. We will see. So far, I’ve been consumed with the idea of getting a beach condo. There’s a decent chance I might do that first, but nothing is set in stone. Regarding my siblings, I’m also helping some of them out (haha), so they are not really in a position to help right now, but we all are doing right by our parents. They are doing the heavy lifting taking care of our dad. All in all, I am confident our parents will be taken care of, one way or another.

      Reply

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