The Butler Project

Looking for money? Aren’t we all? Whether you’re trying to finance a new business start up, consolidate some debt, or looking to get into your first home, there’s an option that you may not have considered before: borrowing from friends and family.

Now, I know, it’s not wise to mix money and relationships (look at the divorce rate in the US and one of the top reasons is money), and I would rarely suggest it to the average Joe. But with the mortgage crisis the way it is and you looking to be frugal and creative with your resources, the idea of borrowing from someone you know might be worth another look.

You have to be committed.

First of all, don’t consider this option if you do not 100% trust yourself to pay the loan back. If you have a history of going back on your word, or starting things you can’t finish, pulling friends or family into your mess is not worth it. Not worth it. If you can’t honestly trust yourself to pay the loan back as promised, don’t go into debt. I don’t care what the interest rate is, or what a deal you’re getting, don’t go into debt.

That being said, if you need a creative source of money to invest in a home or an income producing asset, you might want to consider a personal loan.

The problems with personal loans.

The problems with personal loans are generally tied up in the people: they have different memories of how much and when the loan was to be repaid; they fail to nail down an interest rate; they forget to make payments; they argue over late fees. No wonder personal loans are generally trouble.

The best way to make or take a personal loan.

However, if you have (or are yourself) a willing lender, you can make the process much easier, and safer by making the loan legal with a promissory note. We took advantage of owner financing when we bought some property a few years ago. A local title company drew up the papers and processes the monthly payments. They take care of all the tax documentation for both the borrower and lender. In fact, we have no contact with the lender, and he has no headache with paperwork coming from this loan.

Protect yourself.

Besides the convenience, there are several advantages to putting the loan officially on paper. First of all, with the terms of the loan legally recorded, both parties are safe from the other “forgetting” the original agreement. This will, in theory, save many a personal relationship from the obvious pitfalls of a personal loan. Secondly, the IRS requires lenders to pay tax on interest income for a loan over $10,000, that means more paperwork. Third, if the borrower does default on the loan, the lender can prove it and take a capital gains loss on his/her income taxes.

Put space between the two of you.

If you use a service as we are with our title company, they will, for a small monthly fee, take care of the IRS forms and process the payments. Not only does this save you time working on paper work, it puts some “space” between you and and your friend or relative. The title company will charge the late fees, if needed and make the collections phone calls if it comes to that. The lender then can’t give the delinquent borrower a break as all the terms of the loan are on paper, and therefore legally binding.

If you’re not comfortable finding a local title company, you can find these services on the web. www.virginmoneyus.com has a particularly nice site with many options to really tailor the loan to your needs. Even if you don’t need a loan, I would recommend checking out this site as it is just another example of Richard Branson’s brilliance when it comes to filling people’s needs and making money doing it.

P.S. Mark says this post “reads like sales copy on a loan site” and seems to be keyword stuffed. It was written as neither of those; I just thought personal loans were something our readers might be interested in. Anyone want to chime in on this? Please do.

If you’re trying to reduce and pay off your debt, high credit card finance charges are a real thorn in your side. You’re probably tempted to transfer your balances, but wonder about short introductory rates, balance transfer fees and how balance transfers affect your credit score. Before you do anything, make a simple phone call to each of the companies with whom you are carrying a balance. Try Jean Chatzky’s script to get your interest rate lowered:

“I have [name of card] with you and my interest rate is [X] percent. I received another offer in the mail from [other bank's name] for [X] percent, but before I take it, I want to see if you can lower my interest rate instead.”

If the representative says they’re not authorized to do that, you say:

“Look, you and I both know that if I transfer my balance today, next week your bank is going to send me an offer to come back at an even lower rate. Why don’t you just save the bank the cost of that effort by giving me several points today?”

If the rep says it’s not possible because your credit card is at a fixed interest rate, you say:

“Actually, that doesn’t have anything to do with whether or not you have the ability to lower my interest rate. A fixed interest rate only means that my rate doesn’t vary with fluctuations in the prime rate. In fact, the bank can raise it on my account at any time by just giving me 15 days written notice. And the bank can, if it chooses, lower the rate today.”

If the rep still says they’re not authorized to do that, you say:

“I’d like to speak to your supervisor.”

Then speak to a supervisor and follow the above script again.

Now, keep in mind paying on time every month goes a long way with the credit card companies. If you have a history of making late payments, they get a bit snippy and reluctant to help you out in any way. But, whatever your situation, it never hurts to ask to have your credit card rate reduced.

P.S. If you do get your rate(s) reduced, find the smartest place to put that extra money. My first choice would be to apply it to my most expensive debt. If you feel the need to get a little money in a savings account, by all means, do that. Don’t think of it as “free money,” use it wisely to better your financial situation.