Many parents today are finding out that their kids have racked up thousands in credit card debt. Often it was to float tuition payments and associated school expenses (as it was in my case), or to survive a layoff for a stretch of time. Either way, it’s tough for a young person to get established when most of their earnings are going towards paying off credit card debt.
As a parent, we want our kids to have it easier than it was for us – at least I do. But that doesn’t mean kids shouldn’t be allowed to learn some lessons the hard way. After all, it is only when we face these challenges that we grow.
Still, it is hard to watch kids struggle to keep their head above the surface when drowning in debt, particularly when many of us know exactly what it feels like. The anxiety, the insomnia, and the feelings of shame associated with debt are like few others in the emotional realm. Before you bail them out, consider the following questions to make sure you are doing the right thing.
One way to lend a hand is to advise your kids to speak to a company like this wealth management Canada service. They’ll help your children to better manage their finances and should prevent them from incurring any major debt again in the future.
A Few Things To Consider Before Providing Debt Relief For Your Kids
1. Can you afford it? If the answer is no, stop here. You simply cannot jeopardize your own financial well-being by paying off credit card debt for your kids. It would be different if they needed money to eat, or for a medical emergency, but credit card debt alone does not qualify for this level of crisis. So it requires a rational look at your own finances, and if you can afford to help them without harming yourself, continue with the following questions.
2. Has your child changed the habits that led them into debt? You know the old saying, “Fool me once, shame on you. Fool me twice, shame on me?” Well, the same applies to debt. If your child got in over his head with debt, but seems to have learned his lesson, cut up his credit cards, and has been making an honest effort to repay his debts on his own, it might make sense to help. However, if he still has three credit cards in his wallet, refuses to sit down and work up a budget, and spends money frivolously, then he probably doesn’t deserve your assistance. In in the latter case, if you give it anyway, chances are he will be right back in debt in no time.
3. Will this be considered a loan or a gift? Ask yourself this question from two perspectives: relationally and legally. From a parent-child relationship perspective, loaning money to kids can change the dynamic between you forever (or at least until the debt is repaid, and it often is never repaid). If you decide to declare it a gift, be sure you are under the legal gift amount per IRS regulations, or their will be tax consequences.
4. Can you meet them half way? If you decide to help your kids pay off their credit cards, I suggest meeting them half way, literally. Match the amount they pay each month to help them work off the debt faster, while encouraging them to share the load. If your kids are able to work and put together $400 a month towards debt payments, pitch in another $400. No matter how much they owe, $800 a month should bring that total down quickly, saving them hundreds of dollars in interest, and shortening the time before they can get on with their lives.
How do you feel about parents contributing to their children’s debt repayment plan?