Paying off debt created by my brother

There are a number of reasons why people cannot pay their debts. They might have used their credit cards to pay for everything including frequently treating their spouses or friends in expensive restaurants, taking a Christmas vacation in a tropical island or withdrawing a lot of money for starting up a new business which later does not run well due to poor management or worsening economic condition. But there are people who are being trapped into debt because of car accident or health crisis (suffering from cancer, stroke) and other unavoidable events such as being fired from their jobs, divorce and etc. When we are not able to pay back our debts we will not sleep well, our health condition will get worse. Such stressful condition also affects our daily life. Having debts is tolerable as long as we have the ability to pay them back. If we are trapped in a huge amount of debt, we must have comprehensive action plan to immediately getting out of it. This include living frugally, cut unnecessary spending, finding additional income or selling things at home that we don't really need or that create high maintenance cost that have added more burden to our spending budget.

When I am writing this hub, I am still paying off a debt created by my brother because my parents ask me to. I was angry when I had to handle a problem that is not mine. The amount which we (I, my parents and brother) have to pay is more than 100,000 US dollars or to be exact 117,647 US dollars if calculated based on the current USD to Rupiah exchange rate which is 1 US dollar = Rp. 8,500. It is a heavy burden for me especially in a developing country like Indonesia whose banks charge high interest rate due to fast economic growth that it is experiencing right now. I did not receive any money from this loan that my brother got. My monthly income now is 1,200 to 1,700 US dollars (from bookstore and Google Adsense earnings) which is very high in Indonesia - but still not enough to pay off the debt within two or three years. But as a moral responsibility to my parents, I have to help them during these hard times.

This month I am going to write articles that are related to debt. I am writing them based on my own experience in paying off my 11,500 US dollars bank loan for small business (which I used for running a small bookstore) and my current efforts in helping my parents and brother paying off their more than 100,000 US dollars debt. I personally now live a debt free life. After paying off all the 11,500 US dollars bank loan with all its interest to a total amount of 14,200 US dollars, I decided not to request another loan from any banks or other financial institutions. 

Just two months after completing my obligation in the BNI, a state owned Indonesian bank, my mother came to me crying and requesting my help to pay off another huge debt which I had mentioned above. My younger brother had requested loan from the local banks to finance his construction business. He is still a young and unexperienced "businesman." He couldn't manage the money and his employees well. His construction company collapsed. Now he has to pay back the bank loan on the amount of more than one hundred thousand US dollars. When he got the loan from the banks, he used my parents property (house and land as the guarantee). Now he is not able to pay the minimum monthly installments which is the interest. We are not living in the United States. We live in Indonesia - still a developing country. So, paying off more than 100,000 US dollars debt (not including its interest) is really a very hard task for my brother and my parents.

I consider the debt which my brother created as bad debt because:

• He was not able to pay even the minimum monthly installment.
• His construction company has collapsed.
• He used my parents' home and land as the guarantee for the bank loan which he is now unable to pay back.

The bank loan which he had been expected to fuel his construction company and grow his business now has turned into a bad debt. He cannot pay it. This dire situation may bring my parents and the whole family into becoming homeless people. I cannot let this to happen. I am not an angel nor a hero but in this financial crisis, I must give a helping hand.

When I found out my brother's worsening financial condition, I was very angry about it. He had put my parents in deep trouble. I immediately asked him to explain why he carelessly caused such stupid mistakes. He could not give detailed explanations. So, I told him to invite the loan officer of BRI (Bank Rakyat Indonesia) - the bank that takes offer all his debts in various banks to try to settle this matter through a debt restructuring plan. The next day, during the meeting, my brother stupidly again stated his ability to pay the monthly installment. In reality he is not able to pay it. Should I pay my brother's debt? I have no choice but to help my parents with all of the business potentials that I and the whole family have.

I asked my parents to clean the second floor of our house and turned it into a tourists home stay or guest house. It has four bedrooms comfortable enough for budget travelers. My parents have a grocery store and a water purification depot that supplies 200 gallons of clean drinking water to the town dwellers. These businesses are expected to run well and make substantial profits to pay the debt. I personally give financial promise to my parents where I will give them several hundred US dollars to help them getting out of this debt. With all the family work together, I hope that we can pay our debt in less than 6 or 7 years.

In order to change the bad debt into a good debt, what we need to do is paying more than the monthly minimum. It means that we must pay the amount of money that is higher than the interest. If not, the debt will not shrink.  When the debt or bank loan can be reduced to less than 50,000 (fifty thousand US dollars), the interest will be much smaller than what we are now paying. I expect that within three years time, my family can pay half of the debt. By then the debt will become a good debt. We will be able to restore the trust from our bank. I don't know whether my brother or my parents want to request another loan from the BRI or BNI when this debt has been paid off or not but I personally am reluctant to live with big debt anymore. 

I don't see a bank loan as a bad debt. If a business is well outlined with a good business plan, a loan from a bank can accelerate its grow. When the business runs well, it can create more new jobs and make profits for the prosperity of all the people who work in it. I don't have any negative views about a business loan from a bank or financial institution as long as the use of the loan is implemented carefully.

I used to get a bank loan from BNI. Its only a small amount of loan worth 11,500 US dollars. I used the money professionally and carefully. I work hard to develop my bookstore and live frugally. Even though I am now free of debt, I feel that I cannot let my parents and my brother down. I have to help them. I hope that by giving example through my frugal lifestyle, they will be able to change their way of treating their business and their money so that they will not be trapped into a bad debt a second time again in the future.

Also read:

My debt reduction plan for 2011

Getting out of credit card debt