By: Revanche

When buying a timeshare is crippling

January 15, 2010

Back in November, I enjoyed the pleasure of my friends’ company in their well-appointed timeshare in Hawaii.

There are many financial reasons not to buy a timeshare: they’re expensive, they require a substantial upfront fee, they require substantial annual maintenance fees, and unless you’re willing and able to buy a more premium tier in whatever program you buy into – they’re very hard to unload.

My friends, Dee and Jay, don’t have any of the above problems.  In their previous lives as relatively high level executives more than ten years ago, Dee purchased three timeshares which they enjoy to this day.

Another friend Bea, my age, bought a timeshare back in 2005.  The math she described to me didn’t sound like a wise purchase but I have the benefit of hindsight.

She took out a loan for $14,000 for the base cost of the timeshare, and pays an additional $1200 per year for maintenance fees.  Her timeshare works on a points system so for her purchase she receives 7,000 points per year for redemption towards any property in the system. Redemption works much like hotel points.  She has the flexibility to hold points from one year to the next, and to borrow and advance from the upcoming year so she can essentially triple her buying power in a trio of years.

The problem here is that at 23, she owed $60,000 in school loans, and at least $20,000 in credit card debt.  When she earned her Master’s degree and was making $60,000/year, not an awful lot of that money was paying down the debts, and she was continually spending more money.  She admits that a good deal of that money frivolously, like that time she blew through the mall on a $300 shopping spree. I witnessed that one, she told me about a few others of varying costs.

With that shaky background, she finally hit the skids when she was laid off for several months last year and had to live off her modest savings – unemployment just covered her rent.  And now that she’s found the guy she wants to marry (this year), the timeshare costs are keeping her from saving because she’s not making enough to pay all the bills and debts and save.

Worse, due to the stint of unemployment, she’s currently upside down  on the loan so she must sell it for the amount she owes which is much more than other owners are pricing their ‘shares.  It’s definitely a buyer’s market.

From what she’s told me, I can identify the basic warning signs that were ignored:

1. Her existing debts were quite significant.
2. There was no plan to quickly eliminate that debt.
3. She hadn’t factored the cost into her cost of living in case she lost her job.
4. The timeshare wasn’t considered “high value” which has more options and can be more easily sold.
5. An insufficient emergency fund.

My instinct when people are in financial difficulties is to jump in and offer to help, but we all know how well unsolicited advice is often taken.  If she wants my help, she knows I’m more than happy to lend an ear and a hand, but in the meantime, I’m wondering what I would advise to start her on a debt-free journey.

As a salaried employee, she can count on the paycheck to be consistent but at the same time, that means that she has to look elsewhere to make extra money.

1. Accept that money will be tight for a while
2. Honestly evaluate all wants and needs, and decide what level of commitment you’re willing to make towards paying down the debt
3. Hunker down and start cutting away any fat in the budget (there IS a budget, right?), putting all the money toward debt and savings
4. Make some realistic decisions about the prospective wedding
5. Consider ways to generate extra income to put towards the debt
6. Start an emergency fund

I’d say that given her career choice in the education field and the non-existent hiring she’s described, this is probably enough to work on for the next six months.

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