Top 3 Ways To Help Your Adult Child Get Free From Debt
Adulthood isn’t what it used to be. Many young adults today are struggling to make the transition to life as financially independent “grownups” with homes and careers and families of their own. Recent college graduates have taken on historically high levels of student loan debt. Many young adults are also struggling with credit card debt, car loans and other debts as they try to maintain an “adult” lifestyle without the grownup paychecks to cover all the bills. Some adults find themselves going to Mom and Dad for help with their personal finances.
If your (adult) child is struggling with credit card debt, many parents might wonder what is the best way to help. Do you want to issue a "personal loan" to your child and bail them out by writing a check, or co-sign on a loan with a bank?
Here are a few tips for how to help your child get out of credit card debt "the right way," and won't damage your child's financial future or your relationship.
Loan from the “Bank of Mom and Dad”
If your adult child (age 18 or over) has racked up some credit card debt, and you want to help them repay the debt, you can issue them a “personal loan” by charging them interest and signing a contract, just like you would if you were a loan officer at a bank. Why is it best to charge interest, even to family members? Because interest and clear expectations make it more likely that the loan will be repaid. It’s better to establish a clear understanding of when and how the loan must be repaid, rather than risk damaging your relationship in the long run with an unpaid debt – or enabling irresponsible financial behavior from your child.
Co-sign on a Loan
Depending on how much debt your child has amassed, you might consider being a co-signer on a personal debt consolidation loan. The advantage of being a co-signer is that you can use your own credit history to help your child qualify for a better loan with more favorable interest rates and terms than they might have gotten on their own. The disadvantage is, as a co-signer, you are equally responsible for repaying your child’s debt. If the child fails to repay, the bank can come after you to collect on the debt.
Help Your Child Help Themselves
If your child’s debt is severe enough, another option to help your child get out of credit card debt is to help connect your child with services like credit counseling, debt settlement, or other options to negotiate with credit card companies. Instead of spending your own money or risking your own credit score, you could help your child find a good consumer credit counseling agency or debt consolidation firm that could offer assistance. And as part of that experience, you could help your child find good budgeting tools and talk with your child about how to make better financial decisions in the future.
Having credit card debt is a challenging situation, but it doesn’t mean that you and your child have to risk your relationship for the sake of paying off loans. Look for ways to help your child without risking your own money and your own credit. Children often prefer to help themselves get out of their own financial challenges without taking money from Mom and Dad – but by being a supportive parent, you can help them get started on a more constructive financial path.