I have counseled numerous families on how to manage their finances, and there’s been a common issue among many: how to best help an adult child with his or her financial issues, from struggling to make mortgage payments to managing overwhelming credit card and student loan debt.
Adults face a tough job market today—even with a college education—and often turn to their parents for help. These parents are faced with a tough decision: Do they rescue their child from financial ruin, putting their own financial lives at risk, or do they leave the child to sort out the mess alone?
Consider alternatives to paying off your adult child’s debt
The first thing to consider is whether there is an alternative to helping adult children with their financial issues. Determine the type of debt your child has. If he or she is struggling with mortgage debt, for example, you may only be able to offer moral support—it’s up to your child and his or her lender to come up with a solution. If you want to help, though, you may want to help your child organize the mortgage paperwork and reach out to the lender. Then, your child and the lender can discuss payment options or alternatives, such as a loan modification or a short sale.
Should your adult child ask you for help with his or her student loan debt, do some research before simply taking over the payments. Research programs that may be available to help your child with his or her student loan debt, such as the Public Service Loan Forgiveness (PSLF) program or military programs. You might also consider student loan counseling from a non-profit credit counseling agency that can talk with you and your child about repayment options.
In some situations, adults need help caring for their own children. I have spoken to many grandparents whose grandchildren stay with them full-time because of their children’s financial issues. If you’re a grandparent, one way to help is to offer your grandchild a place to stay after school. This could save your child a tremendous amount of money, as he or she would no longer need to pay for daycare or afterschool programs. This is a big responsibility, but it’s also a way of assisting your adult child without breaking your own bank.
Think twice before paying off your adult child’s credit card debt
If your adult child is struggling with credit card debt, you have to ask yourself if it’s a good idea to help him or her pay off the debt before dipping into your wallet. Is your name associated with the debt in any way? If it is, keep in mind that your credit score could be negatively impacted if your child doesn’t pay the bills. In this case, you may want to take over the payments to ensure they’re paid on time and your own credit doesn’t suffer. You may want to close the account or lower the credit limit so your child does not get overwhelmed with debt in the future.
If the debt is not associated with you, meaning you’re not a co-signer or joint account holder, use caution when paying off the debt. If your child got into debt because of his or her poor money management skills, he or she could wind up in debt again and expect you to foot the bill a second (or third or fourth) time.
Is helping your child financially something that you can do?
No matter what situation your child is facing, the big question you should ask yourself is whether you can afford to help him or her with financial issues. If the answer to this question is no, then you must stay firm and offer a different type of support other than financial. It can be difficult to watch your child struggle at any age, but if you were to become homeless by putting your financial future at risk, would your adult child be able to take you in and pay for your future accommodations?
If helping your child get temporarily caught up on his or her bills would mean risking your home and retirement savings, it may not be a good option. Instead, focus on maintaining your own financial standing so that you’re able to guide your adult child and provide the moral support he or she needs to manage the situation.
Mechel Glass is the vice president of education for ClearPoint Credit Counseling Solutions. She is responsible for developing the curriculum and financial education materials for online classes including webinars, podcasts, videos, and listen-on-demand classes. She provides support and training for the agency’s community outreach programs and staff, including financial education specialists in 15 states. Glass also manages the development and reporting of the agency’s online education, and she is the co-author of The Veteran’s Money Book (Career Press, April 2014).