More and more young adults continue to struggle with debt. In fact, according to a report by The Institute for College Access & Success, the average college graduate earned a degree with $29,400 in student debt in 2012. Additionally, College Parents writes that the average amount of credit card debt carried by college students is $3,173. Seniors are graduating with an average credit card debt of $4,100, and 19 percent graduate with a balance greater than $7,000.
But this isn’t just a problem that’s impacting young adults; it’s also affecting their parents. When your child is struggling with debt, you’re faced with a tough question: What can you do to help? Here are seven ways you can help your child escape debt without placing a financial burden on yourself.
1. Lend a hand with budget assistance
If your child’s spending habits are racking up credit card debt, it may just mean they’re lacking good financial management or budgeting skills. Help them put together a budget that looks at their sources of income, in addition to what they owe. Make a point to prioritize their necessities, including housing, medical insurance and food. Help them figure out other areas where they can cut back, and develop a plan that they can stick to, ensuring they’ll pay down their debt, writes Zacks.
2. Talk with them about their spending habits
Sit down and really talk to your child about how they got in this situation. Make sure they know the seriousness of where they’re at financially, and offer advice on how they can change the way they think about spending, writes The Money Couple. If your child is a spender, help him or her figure out how they can spend within their means (budgets). If your child likes to take risks with investments, explain how saving more now can help them invest more later. Make sure you’re opening communication, so if your kid starts to falter with his or her spending again they will hopefully come to you sooner, before too much damage is done.
3. Take a look at the situation
Is this the first time your child has come to you asking for financial help? “If this is an unusual emergency beyond your child’s control – caused, perhaps, by an illness, a job loss or a divorce – that’s one thing. But if your child consistently shows a lack of spending control or has addiction problems, a different kind of help may be needed,” says Today. If this is a recurring problem, it may be something you can’t fix on your own. You won’t be doing your children any favors by continuously bailing them out
4. Suggest they seek counseling
Suggest your child see a financial counselor. Organizations such as Money Management International provide credit counseling, foreclosure prevention and bankruptcy counseling, writes Yahoo. The first hour on the phone is free, and the organization offers education, including ebooks, webinars, podcasts and a team of educators. If you do opt to find a financial counselor for your child, just make sure they are a Federal Trade Commission affiliate, and/or affiliated with “with one or more trade associations; e.g.,National Foundation for Credit Counseling (NFCC) or Association of Independent Consumer Credit Counseling Agencies (AICCCA),” per Yahoo.
5. Offer to help in other ways
Figure out other ways you can help your kids without loaning them money. If they have children, offer to babysit for them more, cutting down on their childcare costs. If you can’t afford to help them with their mortgage and they can no longer pay it, offer to let them temporarily move in with you, according to Credit Cards. While that’s not an ideal situation, it’s important that your child knows they have somewhere to go.
6. Before bailing them out, assess their effort
Per Yahoo, “you should make certain your adult children have done their due diligence and tried everything before considering giving them money. Have they sold their assets to pay bills? Have they downsized their means of lifestyle? Have they cut up the credit cards?” If they have tried to solve the problem on their own and exhausted all of their resources, consider stepping in to help. But, before you do, make sure you take a look at your own finances, so you’re not placing a financial burden on yourself in the process.
7. If you opt for a loan, approach the transaction carefully
If you decide that the best way to help your child is by loaning them money, there are several things to consider. First, you should approach the loan as you would a business deal and come up with a written contract. Document everything and draft an agreement that is signed by you (and your spouse) in addition to your child, suggests Today. Also come up with a repayment schedule, and outline the consequences of not repaying the debt, such as no future handouts. “The agreement could also come with other requirements. For a chronic overspender, for instance, you could delay actual possession of the loan money until you see some progress has been made in changing the behavior. Or you could point them toward Debtors Anonymous (though there’s no way to really monitor attendance),” per Yahoo.
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