Helping a Desperate Sister
by Gary Foreman
Those Who Give Too Much
When Your Friends Struggle
My sister is a single mom and can't fully provide for her kids. She is receiving housing benefits where the government pays for most of her rent. She purchased a car with no money down. The payment with insurance is about $500 per month. When housing found out, she was told to get rid of that car or she would lose her housing benefits. She asked me to put the car in my name, which means that I would have to put the financing in my name as well so it does not show on her credit. She would still drive the car. I'm afraid to make that kind of commitment. She refuses to give the car back to the dealer because it's going to ruin her credit. My other sister gave her $4,000 to buy a used car when she returns her new car, but she does not want an old car. What should I do? My heart tells me help her, but my head tells me not to help her! I love her dearly, but she's always broke and I am afraid she'd get into an accident and I would be totally liable.
Confused Sister must come from a very close and loving family. It's obvious that these three sisters care for each other. But, sometimes you need to do what's best for a person. Even if it's different than what they ask you to do. This is one of those situations.
If your three-year-old takes a sharp knife from the dinner table, you're going to take the knife away from him even if he cries and doesn't want to give it up. You know the danger even if he doesn't.
Broke Sister is going to hurt herself (and her children) with the car loan. That's one reason why the housing authority doesn't want her to keep the car while she's receiving rental assistance. They know that she won't be able to keep up with a car payment and continue to feed her children.
So the best thing that you can do for your sister is to help her get out of the new car and replace it with something she can afford.
Broke Sister has a couple of different possibilities for the new car. If she can find someone to take over payments, she could come out with no bad marks on her credit. The key here is that the lender gets their money on time.
It's also possible that the housing authority could help. Most have laws against "predatory lending" practices. There's a possibility that the lender was taking advantage of Broke Sister. The housing authority might be able to point her to a state agency that could help her get out of the car loan.
A third option would be to contact the dealer and explain the situation. They might be able to put her into an affordable car. The original dealer should be Broke's first stop since they'll get the best price for her now used new car. She will need to finance the loss on the new car, but the money from Third Sister should help keep the payment affordable.
The final method for returning the car is a "voluntary repossession." That's where Broke Sister drives the car to the lender and turns over the keys. They will sell the car. It will bring less than Broke Sister owes on the loan. The lender will expect her to pay the difference. She might have to use the $4,000 that the Third Sister is offering to cover the loss. If she doesn't repay the loss, it will affect her credit rating.
Ok, now that Broke Sister has a few options to put her into an acceptable ride, let's convince Confused Sister why she should avoid Broke's scheme.
First, it's probably illegal. If Broke hides the car from the government, she's lying to get financial aid. That's illegal. Helping Broke to lie is participating in the fraud, which is not something that you want to be involved in.
Next, you would be responsible for the financing. If your sister were one day late with a payment, it could trigger penalty rates as high as 30% on any credit card balances you have. Plus, it would affect your ability to get your own car loan or a mortgage.
You would also be responsible for the car. Broke can't insure a car that she doesn't own. So you would need to add it to your insurance policy. You'd also need to let them know that your sister is a regular driver on the car. If Broke Sister had an accident, you would be involved. It's your car and your insurance company. You can guess what will happen to your rates.
This is a case where you need to listen to your head. It would appear that your sister is not grasping financial reality. She can't afford to care for herself and her kids, so the government is helping her. It's time for Broke to realize that paying for food and shelter is more important than driving a new car. You can help lead her to do what's right for her kids.
Confused wants to help her sister. The best way to do that is to tell her the truth. Broke needs to give up the new car and start being a financially responsible parent for her children.
Debt is preventing me from taking a vacation this year or the vacation I'd like to take this year! Tell us: Yes, debt is affecting my vacation plans! or No, we're going exactly where we want to go but we'd love to learn make our trip as inexpensive as possible!
Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money and CreditCards.com. Gary shares his philosophy of money here. You can follow Gary on Twitter or visit Gary Foreman on Google+. Gary is also available for audio, video or print interviews. For more info see his media page.
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