With astronomical student loan debt and lackluster employment opportunities for young adults, grown children are increasingly in need of financial assistance from their loved ones.
But these young adults are finding financial support far beyond their college years — parents are financing lifestyles, credit card payments and even mortgages.
There is a fine line between fostering independence with financial support and prolonging dependence as a financial crutch. To ensure you’re helping your child rather than hurting them in the long term, while being mindful of your own finances, be sure to consider these six important questions:
1. Can you afford it?
Look over your own financial responsibilities before taking on those of your child. If you’re in debt already, taking on the financial hardships of your child may not be the best course of action.
Even if you have the money, where are those additional debt payments going to come from? More hours worked? Delaying retirement? Think about the big picture cost of paying your child’s debt before offering assistance.
2. Are you a co-signer?
If your child has accrued debt on a credit card or loan you cosigned for, then you must pay off the debt in order protect your own credit.
Any line of credit on which you are a co-signer is factored into your credit score calculation. If you fail to pay, it will reflect poorly on your credit and the banks can come after you regardless of who racked up the charges.
Pay off these debts as you work out a longer term solution with your child to determine if and how he or she will repay those debts to you.
3. What are the terms and conditions?
It’s understandable you don’t want to leave your child suffering through financial hardship, but you also don’t want your assistance to turn you into a constant safety net, serving as the bailout for repeated financial mistakes.
Before helping out with any debt repayment, make the terms and conditions of your assistance clear. Set expectations for financial behavior. Will your financial assistance be paid back? If so, on what timeline? Is this a one time occasion? What do you expect in return?
Offering to pay a percentage of the total debt or offering temporary financial assistance are two ways to offer help while motivating your child to get back on his or her feet as soon as possible.
4. What about the emotional cost?
The more you can maintain a lender/borrower-like relationship when dealing with debt, the better.
Of course, when it comes to friends and family, things inevitably become more complicated and emotional.
Know that discussions of money, regardless of how you handle them, can lead to resentment, guilt, anger, mistrust and a whole slew of other negative emotions. Decide if it’s worth the cost of broaching the topic at all.
5. What are the lessons learned?
Whether you decide to assist your child or not, be sure to inquire and advise them on the behavior that got them into financial trouble in the first place. Suggest new habits of money management that might be more constructive.
Even if you’re not handing over cash, you can still serve as an advice and support system.
6. Do you need expert advice?
Sometimes family and money just don’t mix – no matter how well-intentioned you are.
Suggesting support through groups like debtors anonymous and solutions through professional credit counseling may be a better alternative to the DIY approach.
There are never easy solutions when debt and family mix, but an honest yet firm approach may produce the best results in the long run.
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