What parents can do if kids can't repay debt
Young adults are still learning, and mistakes are inevitable. But what if one of them could potentially ruin your adult child's credit?
If you trust your son or daughter to keep track of their finances, and they slipped up, what in the world are you supposed to do?
Let’s say they rack up a big, nasty credit card debt — to the tune of thousands of dollars. Should you pay off their debts to help keep their credit scores above water? Or is it better to let them learn from their mistakes and suffer the consequences?
Though each individual situation is different, here are your options, what’s at stake, and a few pointers to help you plot your course of action.
You can charge her interest as well, so she learns just how much a high APR can cost her. But you have to examine the situation from a lender’s perspective, rather than simply write a check and expect she’ll make payments. What is her employment situation? Will she be able to make payments to you without the security blanket of your relationship making her complacent? Has she typically been a responsible spender in the past, or does she impulsively purchase on a grand scale regularly? If you do decide to help protect her credit history, it’s smart to sign a contract with your daughter to make your agreement more official and binding.
More and more parents are co-signing on accounts and acting as guarantors for their children. If you’ve already taken that step, you hopefully realized that your son’s purchases would affect your credit, regardless of your involvement.
In this case, it may be more prudent to pay off the debt if you can, cancel his account and work together to come up with a payment plan to rectify the situation and make sure it never happens again. If you haven’t co-signed yet, sit down for a serious conversation with your son on your values and financial responsibility.
There are many factors at play, but above all, your relationship and your child’s sense of responsibility from this learning experience should be at the forefront of your mind.
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