Personal Loan from a Friend

[triciab1361]

I need some advice! I have about $50,000 in credit card debt. Recently a friend of mine has offered to pay the debt off and I could make payments to her instead of the credit cards companies. I want to take her up on this offer but I have a few questions.
#1 - What is the best way to approach this? Should she write a check for each of the credit card companies?
#2 - What are the negative effects for the friend who is loaning the money?
#3 - Is this legal? Will the banks start asking questions about how she is using her money?
#4 - I don't want her to get taxed on anything...so will the banks snoop around if she is writing checks to pay off my credit cards?

Thank you for the information!

 

[army judge]

I need some advice! I have about $50,000 in credit card debt. Recently a friend of mine has offered to pay the debt off and I could make payments to her instead of the credit cards companies. I want to take her up on this offer but I have a few questions.
#1 - What is the best way to approach this? Should she write a check for each of the credit card companies?
#2 - What are the negative effects for the friend who is loaning the money?
#3 - Is this legal? Will the banks start asking questions about how she is using her money?
#4 - I don't want her to get taxed on anything...so will the banks snoop around if she is writing checks to pay off my credit cards?

Thank you for the information!

This is one way to clear your debts.
Almost anything that two adults agree to do, is legal, as long as they don't conspire to break the law.
She can loan you $50K, or give you $50k.
It is entirely up to her what she chooses to do with her money.
The terms of the loan is no one's business.

It would be best for this wonderful person to have you sign a promissory note.
But, what if you get ill and die?
What if you are killed?
What if you get an illness and are unable to work?
What if you get laid off and your income is reduced?
What if .... ?

How can you guarantee her that you'll repay her?
What will your periodic payments be to her.
Friends have become enemies over smaller loans.

You have a very good friend, if she is willing to do this for you.
I wouldn't do it.
Too many things can go wrong, for both of you.

You might be better off filing bankruptcy.
But, as I said, what you're proposing is legal.
It is no one's business but yours, not even the banks or the government.

 

[mightymoose]

Man, I learned my lesson over lending someone $100.WW3 nearly broke out.

 

[triciab1361]

A few more questions

Thank you for all of the information form a legal standpoint.

I do have a few more questions. Do you know if the money will be considered a gift and be subjected to taxing? What if she pays the companies directly? Will the banks question the spending of the money? Not sure if you can answer these but any information would be helpful.

Thank you!

 

[tpajet]

First of all you need to get the whole thing in writting with your friend. Spell out every detail.

From that point it's none of the bank's business why the money is being spent. It's her money. There are really only two times when a bank will question large transactions - #1 a large deposit of cash (over $10,000) because you have to provide an explanation of how you got the moeny and #2 might be a situation like this, but, they would contact her and just make sure all is kosher. The reason they do this is not for legal reasons, but rather they do this primarily with elderly folks just to make sure they aren't getting scammed somehow. All she has to do is tell her bank she's loaning money to a friend in need and that is the end of it. However most banks don't even call in the first place.

The best thing to do is for her to pay the bills directly rather than give you the money. That way you don't show a large deposit and trip the IRS's curriosity. There's nothing they could do since it's a loan. They can't tax that as income. But, it's less headache to avoid them in the first place.

SOOOO - let's just sum this up:

#1 - What is the best way to approach this? Should she write a check for each of the credit card companies?

Have an agreement and promisary note in writting ahead of time with your freind, and have her send the money directly to the credit card companies.
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#2 - What are the negative effects for the friend who is loaning the money?

Stick to your agreement and don't screw your friend, and there won't be any.
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#3 - Is this legal? Will the banks start asking questions about how she is using her money?

As stated they can call and question her just to make sure all is OK with her, but there are no legal questions for them to ask. She can spend her moeny any way she wants.
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#4 - I don't want her to get taxed on anything...so will the banks snoop around if she is writing checks to pay off my credit cards?

No. If your agreement with her is to pay her back, then it's a loan. Neither of you will get taxed.


Keep in mind too, when the check clears her bank, they have no real way to know that it's her credit card acount or not. They don't verify who it's being written to. All they do is verify the signature, but even then it's only if the check is over a certain amount (the amount is different for each bank but usually about $500 to $1000).

 

[jharris352]

Let me save you several thousand dollars.

If you are going to do this, write to each and every one of your credit card companies and offer them a cash settlement of 20% of your balance as full payment of your balance with an attached check from your friend. On the Check put on the memo line: Settlement to zero balance of Acct# XXXXXXX. On the back put endorsement of this check indicates account XXXX is paid in full.

You will be pleasantly surprised that almost all if not all of your credit card companies will accept the offer, especially if you are very far behind. For those that don't raise the offer 5% and try again. They will accept soon.

As for your friend, put the deal in writing and I would be shocked if that person is still your friend in 5 years. These deals never work out well.