Maybe they slipped up. Then again, maybe they really wanted you to know.
But let’s say you just found out your twenty-something adult child has racked up $25,000 in high-interest credit card debt.
Yes, they have a job and have an income, but what if they’re only making $42,000/year before taxes. When you add up what they pay for basic living expenses, there’s not much left at the end of the month. They’re getting by, but it’s pretty tight financially. That means they’re probably only making the minimum payments on their credit card bills each month.
You’ve been around long enough to know that credit card companies want you to take your sweet old time paying them back because they make a fortune on interest. When you do the math it’s kind of shocking. By just paying the minimums each month, it’ll cost you $50,000 (or more) to pay off $25,000 of credit card debt. That’s a lot of damn interest. Here’s a credit card minimum payment calculator if you think I’m exaggerating about how much interest you’ll pay over time.
But Here’s The Dilemma
For the sake of this discussion, let’s say you (the parent) are doing ok financially and you’re in a position to help out your adult child with their credit card debt. Should you intervene and offer assistance? Or should you let them struggle, because after all they’re the one that incurred the debt?
That’s a tough call.
On one hand, no decent parent wants to see their son or daughter struggle – financially or otherwise. On the other hand, part of the human experience is to take personal responsibility for your life’s circumstances.
If you’re leaning toward the “tough love” camp, you’re not alone. Sting and Elton John probably wouldn’t help their kids either. Even though they’re both worth several hundred million dollars each and could easily write a check to cover any financial difficulty, large or small, they’d probably let their kids struggle. Seems kind of harsh. But is it?
Advice From Professional Financial Advisors
I did some research online and opinions vary. Some financial advisors recommend the tough love approach and say you should let your kids struggle so they learn a valuable lesson.
Others suggest that you loan your son or daughter the money to pay off their high-interest credit card debt, then they’ll pay you back monthly with little or no interest.
I suppose this option could work, but I’m not a big fan of it because what if they’re late on a payment? Then it puts you in the awkward position of having to ask them for the money. Even if they do pay you on time each month it can still be a bit uncomfortable because their payment is a constant reminder of their personal financial difficulty, one they probably would’ve preferred you didn’t have to know about.
Here’s What I Would Do
I could go either way – help them or not help them. My thought process would be:
What kind of kid are they? What’s their character?
- If they’re rude, arrogant, inconsiderate or think the world owes them something, I’d probably lean toward letting them struggle. I’m not saying I wouldn’t help them, but their character would factor into my decision. Yes, you should love your kids unconditionally. But that doesn’t mean you should just be giving away your hard-earned money – blood relatives or not — especially when they’re not a very nice person.
- Are they kind, caring, generous and hard-working? If so, I’d be much more inclined to offer my financial assistance with this kind of son or daughter.
How did they incur the debt?
- Is the credit card debt a result of extravagant or frivolous charges? $150 dollar bottles of wine? Trips to Las Vegas and the Caribbean because they were bored and wanted something to do? Expensive designer clothing? Etc, etc. I’m not going to be very enthusiastic about helping a child financially when they were using their credit cards to live the “good life”.
- Were their credit card charges for urgent, legitimate and necessary things? Did they need a new transmission for their car? Did they have to replace an old furnace that stopped working? Did they have medical expenses not covered by health insurance? Did they get laid off from their job and had to temporarily use their credit cards for groceries and other basic living expenses? In a case like this, I’d be very sympathetic and willing to offer financial assistance.
Assuming I’m going to help out my son or daughter financially, the next question would be, “Do I offer the assistance as a gift or a loan?”
For me, I’m not going to mess around with a loan for the reasons described above. I’m just going give them the money to pay off their debt. No strings attached. Life is short and I believe if you have the financial ability to help someone out (that is deserving of your help), then you should just help them. Period. No lectures or wagging the finger.
Depending on the exact circumstances, I might offer a bit of advice or recommendations regarding what I’ve learned about personal finances over the years. But I’d keep it short and sweet.
I would also make it clear that this financial assistance is a one-time get-out-of-jail-free card so they know that I’m not there to bail them out again. Otherwise you run the risk of creating a situation where they start viewing you as a human ATM machine whenever there’s a bump in the road financially.
How To Pay Off Their Debt For Less Than Full Balance
In the example above, we used an arbitrary figure of $25,000 for discussion purposes. But let’s say you didn’t have an extra $25,000 lying around to give your son or daughter. What if you could only part with $10,000 or $15,000?
Did you realize you might be able to wipe out their $25k of credit card debt with the money you do have available? It’s true.
If you know what you’re doing, you can negotiate with credit card companies and settle outstanding balances for $0.50 on the dollar or less.
A word of caution though … you can’t just call up the credit card companies and tell them you want to pay off your son or daughter’s debt for less than full balance. They’ll laugh at you and hang up the phone. I guarantee it.
But if you know what you’re doing and you meet certain criteria, you absolutely can settle credit debt for less than full balance. I’ve been helping clients do this for over a decade. Here’s proof.
For more information, contact our office today and request a free consultation. There is no obligation and everything we discuss is 100% confidential. This one phone conversation could save you thousands of dollars. Just ask these people.