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10 Tips: Help a grown child grapple with debt

What do you do if your grown child is struggling under the weight of serious financial problems? Should you or shouldn't you come to the rescue?

By Laura T. Coffey, Times Correspondent
Published January 20, 2008

What do you do if your grown child is struggling under the weight of serious financial problems? Should you or shouldn't you come to the rescue?

1 Assess the situation objectively. Is your child seeking financial help for the first time - or the 10th time? If your child consistently shows a lack of spending control or has addiction problems, a different kind of help may be needed.

2 Ponder the consequences. You could open a can of worms by getting involved in your child's financial affairs. Brace yourself for a barrage of strong emotional reactions on both sides. If you feel confident you can discuss money honestly together, then it might be okay to proceed.

3 Set clear limits. If you decide to help, be clear about limits. "If people know the help is temporary, that's more of an internal motivator to right the ship," said Paul Richard, executive director of the Institute of Consumer Financial Education in San Diego. Richard suggests helping with bills for a set time period or giving the child a percentage of the amount he or she needs.

4 Keep your finances separate. Avoid adding your child's name to your credit cards or establish joint accounts together, especially in a time of crisis. Studies show that up to three-quarters of co-signers are asked to repay loans that go into default.

5 Decide between a gift and a loan. You could eliminate future stress if you can afford to give your child a gift rather than a loan. In 2007, you could give a tax-free gift of up to $12,000 to an individual. The limit for 2008 is not yet posted on the IRS Web site. If you give a loan, document everything and draft an agreement that you both sign.

6 Know where else to point your child. Free, confidential help is offered through Debtors Anonymous (www.debtorsanonymous.org). This 12-step program provides support and guidance the way Alcoholics Anonymous does.

7 Consider credit counseling. Reputable credit-counseling agencies offer reputable help. Contact the National Foundation for Credit Counseling (www.nfcc.org, toll-free 1-800-388-2227) and the Association of Independent Consumer Credit Counseling Agencies (www.aiccca.org, toll-free 1-866-703-8787).

8 Know what to expect. A debt-payback plan devised with the help of a credit-counseling agency can take as long as two to five years to complete. If your child misses any payments, the agency may require full payment at once. This move could force your child into bankruptcy court.

9 Help in other ways. If you suspect your child is dealing with chronic money woes because of larger issues, you could direct your financial help toward rehabilitation or counseling. If he or she refuses such help, it may be time to resort to the tough-love approach.

10 Start the training early. To help prevent future problems, Richard and others recommend parents give children an allowance from an early age and then let them manage their money without bailing them out. Let them learn from their spending mistakes while they're young and the stakes aren't too high.

Laura T. Coffey (laura@tentips.org)

Sources: Institute of Consumer Financial Education (www.financial-education-icfe.org); Financial Planning Association (www.fpanet.org); Consumer Reports Money Adviser (www.consumerreports.org); Internal Revenue Service (www.irs.gov/pub/irs-pdf/p950.pdf)

[Last modified January 18, 2008, 22:39:31]