Should Parents Pay Off Kids Credit Card Debt?

Many parents today are finding out that their kids have racked up thousands in credit card debt.  Often it was to float tuition payments and associated school expenses (as it was in my case), or to survive a layoff for a stretch of time.  Either way, it’s tough for a young person to get established when most of their earnings are going towards paying off credit card debt.

As a parent, we want our kids to have it easier than it was for us – at least I do.  But that doesn’t mean kids shouldn’t be allowed to learn some lessons the hard way. After all, it is only when we face these challenges that we grow.

Still, it is hard to watch kids struggle to keep their head above the surface when drowning in debt, particularly when many of us know exactly what it feels like. The anxiety, the insomnia, and the feelings of shame associated with debt are like few others in the emotional realm.  Before you bail them out, consider the following questions to make sure you are doing the right thing.

One way to lend a hand is to advise your kids to speak to a company like this wealth management Canada service. They’ll help your children to better manage their finances and should prevent them from incurring any major debt again in the future.

A Few Things To Consider Before Providing Debt Relief For Your Kids

1. Can you afford it? If the answer is no, stop here. You simply cannot jeopardize your own financial well-being by paying off credit card debt for your kids.  It would be different if they needed money to eat, or for a medical emergency, but credit card debt alone does not qualify for this level of crisis.  So it requires a rational look at your own finances, and if you can afford to help them without harming yourself, continue with the following questions.

2. Has your child changed the habits that led them into debt? You know the old saying, “Fool me once, shame on you.  Fool me twice, shame on me?”  Well, the same applies to debt.  If your child got in over his head with debt, but seems to have learned his lesson, cut up his credit cards, and has been making an honest effort to repay his debts on his own, it might make sense to help.  However, if he still has three credit cards in his wallet, refuses to sit down and work up a budget, and spends money frivolously, then he probably doesn’t deserve your assistance.  In in the latter case, if you give it anyway, chances are he will be right back in debt in no time.

3. Will this be considered a loan or a gift? Ask yourself this question from two perspectives:  relationally and legally.  From a parent-child relationship perspective, loaning money to kids can change the dynamic between you forever (or at least until the debt is repaid, and it often is never repaid).  If you decide to declare it a gift, be sure you are under the legal gift amount per IRS regulations, or their will be tax consequences.

4. Can you meet them half way? If you decide to help your kids pay off their credit cards, I suggest meeting them half way, literally.  Match the amount they pay each month to help them work off the debt faster, while encouraging them to share the load.  If your kids are able to work and put together $400 a month towards debt payments, pitch in another $400.  No matter how much they owe, $800 a month should bring that total down quickly, saving them hundreds of dollars in interest, and shortening the time before they can get on with their lives.

Comments

  1. I found out about five years ago that my cousin got into more than $30k in CC debt. My grandmother paid it off. This really pissed off my mom, since when grandma passed away, she gave each of us grandkids the same amount of money–far less than the $30k she gave to my cousin. I was grateful to receive anything, but it’s amazing what kind of family drama can arise in these situations!

  2. I think that the more you help your children dig out of holes like this, the less effective the lesson of their mistake is. I’d hate to see a child ruin their credit, but I’d hate even more if I helped them out of debt only to watch them dig back in. It takes a long time and alot of hard effort to change bad spending habits, and paying off an uncomfortable amount of debt is a lengthy and drawn out process. Although I don’t agree with actually providing money, I do believe that setting up a debt elimination plan is a good idea. Get full disclosure on what is owed, what they bring in every month, and what they spend on. Teach them tricks that you have used like calling to negotiated lower credit card interest rates, and/or transferring balances to 0% cards to make their payments become more effective. I learned the hard way. I’m still paying off debt. And even though I’ve learned my lesson and changed my habits, I refuse to ask for any help. I want this lesson to stick. And digging myself out results in a great feeling of accomplishment.

  3. Very insightful post about the balance one needs to find between helping and teaching. I always life the half and half system or “matching” programs. Although my daughter is only 1 it’s never to soon to start thinking about how we will raise her in regards to finances.

    Great Post!

  4. I like the balance that you bring to this question in this blog entry. It is indeed natural for a parent to want to help his kid out of a jam. We shouldn’t deny those feelings. But it is also true that we hurt our children in the long run if we deny them the feeling of pride that comes from helping themselves out of a jam. It makes sense to try to help out without entirely providing the solution to the problem.

    Rob

  5. Very good point – if you bail them out without first confirming that they are committed to changing their spending habits you’re most like going to have to do it again down the road!

    Robin

  6. Credit card debt is a nasty animal. I would consider paying off the credit cards of my children (don’t have any) only if there was something to be gained by it. Would they pay me back at no interest? Would they have to start a Roth IRA with automatic deposits? I’m not sure what I’d do. I do know I wouldn’t simply pay it off unless a lesson would be learned from it.

  7. One of the best lessons we can teach our children is that there are consequences for their actions. Simply bailing them out of any difficult situation teaches them nothing. In the case of credit card debt, I think I would consider helping with some sort of matching only if changes had been made to prevent the irresponsible spending that caused the credit card debt. I would probably reconsider (and would likely help more) if the debt were caused by some unavoidable misfortune.

    • Not all credit card debt is from irresponsible spending. My husband was laid off for two years, I had a surgery, chiropractor payments, a divorce (from my previous marriage), college loans, car issues, y husband has epilepsy and has had to go to the ER a few times to stop his seizurs, epilepsy medications prescriptions, etc. I had to use my credit cards to pay for all these things and have found myself in a mountain of debt. We do not live beyond our means, have a strict budget, and rarely spend extra money on ANYTHING. We never go out to dinner, I haven’t had new clothes in 5 years, and I shop at Goodwills. We have had garage sales, I tutor in my free time and babysit during vacations. My daughter has expenses for school field trips, etc. and we spend extra money on that. Not everyone gets in credit card debt because of irresponsibility. We have had some very unfortunate issues and it is hard enough to deal with the stress and anxiety of figuring out how to pay them off without people assuming that paying off credit card debt on your needs to be a “lesson learned.”

  8. After giving the issue some thought – for about 2 seconds – I’d have to say I would not pay for my kid’s debt unless we talked about the expense prior to the purchase.

    If one of my daughters racked up credit card bills I would not deprive them of the opportunity to learn from that mistake.

    Fabulous topic. Well done sir!

  9. I had a friend in high school that got herself into $5,000 of debt. Which is a TON when you are still in high school! Her parents paid it for her. She did it again, her parents “loaned” her the money to pay off the cards.

    By the time we were 25 she had over $30,000 in credit card debt, which she did eventually pay off herself and that is what finally made her change her habits.

    I can’t help but think that if her parents had let her suffer with her $5,000 of debt at 18 she might have learned her lesson a little sooner and saved everyone a bunch of money.

  10. I think you addressed very valid points. I completely agree on point 2. For sure if I helped them out once and they got back into debt, I would not help out again.

  11. I think it would depend on where they are in life and how the debt came to be. Were they in college and the debt started with a massive car repair bill around finals time? Or was the money blown on beer and pizza, and spring break trips? Did they go into debt because a spouse was unemployed or someone was ill and the insurance didn’t cover it and then the roof needed to be repaired? Or did the debt accrue from frivolous crap?

    In all cases it would a loan. My parents have helped my brother and I through some tight spots, and I only hope I can offer the same assistance to my children should they need it.

  12. There are a number of variables to be considered in formulating a response: how old is the child, what are the realistic chances of recovery on their own, what professional resources are available for counseling (financial and emotional). In any event, a parents “help” can come in many more forms than just a “bailout”. Some problems which cannot be solved by only one person can be solved through shared resources. Providing encouragement for success and assurances against the possibility of complete failure may be the key for a young person to work to pay off the debt themself. No, I do not support the idea of the parent paying off debt that was not previously authorized by the parent.

  13. I am the youngest in my family, and for years have watched my parents pay and pay and pay for my older sister. She is now 35 and still hasn’t learned how to take care of herself! I think if she had learned this at an earlier age by my parents taking the tough love approach she would be much better off!

  14. Like the commenter above, I don’t think it’s a simple yes or no question, there are several things that come into play, including how did they get the credit card debt, will they learn anything from this experience, and most importantly, will they repeat the behaviour again knowing that they may have a “get out of debt free” card.

    Maybe instead of paying off all the debt, work with your child to come up with a plan where they pay a portion, and you pay a portion – this way they are learning that paying off credit card debt is not an easy task!

  15. I am in the position of having more than $20K in debt between loans and credit cards. I never thought of going to my parents and asking for help – it’s my beast of burden and it’s my responsibility to pay them down. To this day, they don’t know that I have this debt.

    I did, however, had to disclose this to my husband while we were house shopping. It was painful to let him in on my debt obligations and while he is debt free and he offered, I refuse to allow him to help me pay off my debts as well.

    I’m on a debt reduction system right now and have been forced to alter my lifestyle, especially after I had a paycut from my job. This has been a great lesson on budgeting for me and I’m sure that once I’m debt free, I’ll never let myself get there again.

  16. My kid brother was trained from a very early age to expect my parents to step in and protect him from the consequences of his bad decisions. It started with him spending all his allowance and then not having enough for candy at the end of the week. The older sibling (me) who still had enough for a pack of licorice was then forced to share. This meant my brother always knew he’d be given candy even if he didn’t earn it. The overall incentive was to be a spendthrift.

    The lack of connection between decision and consequence applied to non-financial things as well. My brother really never had to plan or take responsibility for what he did. It didn’t matter if my parents were protcting him from the big bad school principal after he was caught bringing weapons to class, or taking over the care and feeding of his pets, or making sure he got up on time to go to work. They just did it. He started racking up debt in his teens, and my parents bailed him out twice (five-figure credit card sums each time). The third time he went bankrupt, but as soon as he exited bankruptcy he started spending compulsively and drinking again. Even before he started drinking and smoking he was a problem spender, because he knew my parents wouldn’t really let him go without something important the way I was allowed to go without if I messed up.

    All my brother has to do is have a “crisis” that’s bigger than his last one and make what I call mouth noises about how this time it’s gonna-gonna-gonna be different, because he’s gonna-gonna start up his education again, and he’s gonna-gonna stay in that addiction recover program, and he’s gonna-gonna stick to a budget and spending plan which my parents have been trying to get him to do since he was ten. Then he sees that new living room furniture, computer system, or big screen TV that he’s just got to have, so he buys it on credit. Then the cycle starts all over again.

    My parents believe him because “this time it’s different” and he’s really in trouble. I see it as him just falling a little bit farther, on purpose, so as to create enough pressure to cause them to give him what he wants. Really I think they like flying to the rescue. Their ego boost comes from helping him out and from being disappointed in their expectations of him. It’s the same old malarkey all the time, which is one of the reasons I don’t hang out with my family much and haven’t seen my brother for years.

    I think that cleaning up after a child’s irresponsible spending, and standing between that child and the consequences of his or her decisions, is a great way to raise a future addict.

  17. I would not pay any of my children’s debts. We’ve been there, done that, as young newlyweds, and while we have taken loans from our parents for other things (to finish the flooring in our home so we could close on a loan and stuff like that), I would be SO uncomfortable with the idea of them giving us money to make up for our mistakes! And we’ve always paid them back – I would hate for them to expect any less from us!

  18. I really don’t think this is a good idea, unless something dire is about to happen — and then only if it’s clear (as you pointed out) that the kid has learned his lesson.

    I think the other point that needs to be made: Look at the money loan relationally, legally and REALISTICALLY.

    I’ve seen families where money gets borrowed with all sorts of promises that never get fulfilled. And so really, you’re not helping the kid do anything more than fulfill his love for spending more than he makes. (Even if he seems to have changed his ways… A lot of people are very good at showing others exactly what they want to see.)

    You need to ask yourself what will happen if the money never gets paid back. Will this ruin a relationship? Would you really be willing to sue for the money? Can you afford to lose that moolah permanently?

  19. This is a great post and topic and this is what I think about everything..

    When it comes to money and my child, I let them know that nothing comes easy. Whatever they get themselves into, they have to get themselves out. I know I’m here to help but what happens if I’m gone?

    If I keep feeding them money, they will be conditioned to know it’s always there and will continue to spend more than what they can afford.

    I still say learn the hard way, I had to and I seem to be fine today financially ;)

  20. Excellent post!

    I would meet him halfway provided that my kid could first come up with a budget and prove to me that he could handle his end of the deal. Even then, I would only match his payments on a monthly basis.

    When I was younger and got into trouble with debt, my parents presented me with a similar deal. It was strictly a loan and after the debt was paid off, I had to settle the amounts I had borrowed from them. It taught me a valuable lesson.

  21. I don’t think it’s an issue if they have a limit and it’s respected. My parents paid my CC throughout college to help me establish good credit but if there was a big purchase that wasn’t necessary I had to pay them back. Once out of college it was up to me to maintain.

  22. My kids have always known they could get a small loan from me (under $500) provided there was a timeline for repayment within 6 months, and provided it was repaid as stated. If they had not repaid as stated, there would not be another loan. All 3 have asked at one time or another for this option – and always it has been repaid in a timely manner.

    But – that is not “big money” like credit card debt. For that I give advice and guidance and make them work it out themselves. Once they got to a point of getting a loan consolidation plan worked out, and a loan in the works from the bank to straighten out the mess, AND gave up all the credit cards (given to me, plus a condition of the bank loan) except for a small one $300 for emergencies while traveling, then and only then did I co-sign for one of them. That’s been a year and a half ago, and all payments have been made on time thru their auto-pay to the bank.

    This way, they are cleaning up their own mistakes, learning from it, and I am only co-signing “just in case”… obviously, I would not sign for more than I was willing to pay back should the need arise, and obviously I had the utmost faith that my child would make the payments as stipulated, and learn from the mistake, and not get in that situation again. So far, it is working out fine. I would suggest tho that you have the account balance and payment info available online so that you can check the progress as needed. My child and I also have a ‘check in’ on the 1st of the month before the payment is due on the 10th – so that I can be assured that the payment will be made.

  23. PS – I guess I should have stated that all my kids make more $$ than I do – so they should not be looking to poor ol’ mom to pay off their mistakes :)

  24. What a great topic! I think meeting halfway, if you can afford it, is a good suggestion. Your child still learns a lesson, but they won’t completely sink in the process. Based on today’s economy maybe your next post should be “Should Kids Pay Off their Parent’s Credit Card Debt”!

  25. I think children need to shoulder more responsibility as they age. As parents we need to help them know and practice the skills of handling money. That said, if my adult child makes poor decisions he needs to experience the consequences. I probably would be willing to do the matching thing. I hope I educate my children a whole lot better than my parents did me.

  26. As a student that graduate just over a year ago, I am thankful that my parents never paid for my tuition or credit card. Honestly, a lot of us students don’t realize how much money tuition really is, or how hard it can be to pay for a TV purchased on credit. The only reason that I’m thinking about my own personal finance now is because I had to.

    If my parents paid my way, or for my mistakes, I wouldn’t have learned the lessons that I did, and would be at a far greater risk now than I am.

  27. I’m wondering if where you are from (your culture) has an impact on this sort of thing. I am an Australian living in America. I am constantly amazed how much money parents here are willing to spend on their GROWN “kids”. It is my responsibility to teach them good economic habits and to understand the for every action there is a consequence.

    Action..Consequence.
    Action..Consequence.

    (And yes, I’m still mad they canceled Daybreak). :(

  28. Regardless of any other factors, a parent is not OBLIGATED to pay the child’s credit card debt in any situation. It’s not like college tuition or anything.

  29. Thank you very much for your post. I believe this is very sound advice. I am going to have to sit down with my wife over the weekend and review all of our options. Thanks again for the post!

  30. My parents offered to pay my credit card debt for me. I declined. It was my mess, and it wouldn’t have been fair to them. They are not rich people, and worked hard long hours for what they had. I would have been stealing from their retirement. I said I would pay it off on my own. I had the income and skills to manage it, I just needed to live uncomfortable for a few years (5 years it turned out).

  31. Mike from Australia: Right On!

    If the “children” have credit card debt, they must be at least 18 and therefore adults. Although neither one of my grown children have ever asked, I wouldn’t pay a dime. My parents didn’t pay my credit card bills or even tuition once I left home at 19…thank God! It taught me to be careful with my money.

  32. I love the “meeting halfway” option. Another option is to look at what you can do to defer other expenses. A shelf full of groceries or dinner a couple nights a week can take some of the pressure off.

  33. about 17 years ago when I asked my folks to pay off my debt as a gift (back then the worst trouble the cc cos would let me get into was $1000), I proposed that as part of my plan I’d cancel those cards and get an Amex (don’t know if they still require it, but then you had to pay off the balance in full each month).

    I totally got the lesson after digging the hole, and I was gratefully that they lifted me out of it. I have not carried a single balance over to another month since that time.

  34. I am not having kids so this won’t apply to me and my BF, but for what it’s worth…

    As others have intimated (though not stated directly) this situation is even MORE complex when there are multiple children involved. What if you are helping out one child who has made bad decisions, but not doing anything comparable to another child who has made good decisions?

    It is the same type of anger that many taxpayers who could afford their houses feel about the mortgage “bailout.”

    My boyfriend’s brother has “borrowed” (with no intention to repay) over $60K from his parents and flat-out stolen tens of thousands more in credit cards in their names. Although they have not bailed him out as frugaldad is talking about, they have not attempted to get the money back or taken preventative measures to stop him from doing this in the future.

    In the meantime, my boyfriend (who accrued significant student loan debt and credit card debt while in law school) who drives a 14 year old car and has not made a purchase on credit in almost two years, asked them for help to TEMPORARILY balance transfer some of his credit card debt so he could get a lower interest rate. The transfer bounced because his brother had already stolen and maxed out that card, and my boyfriend’s interest rate tripled.

    Now we are not on speaking terms with his parents or brother, and this has also meant that we don’t do Christmas with his extended family because of that, and he hasn’t seen anyone he’s related to in over a year.

    Obviously this is an extreme circumstance, but even in a milder case the sense of injustice for the child making bad decisions getting what he wants while the child making good decisions gets nothing tangible – it is a family feud waiting to happen.

  35. Yeah unless you want your kids to live off you for years, don’t pay off their debt. Get them started on pulling their own share early on, they will appreciate it later.

  36. Parents should NEVER pay for their kid’s debt. I’ve gotten out of a bit of credit card debt; nothing crazy, around 3,000, but if my parents had simply paid it off; I wouldn’t have changed my spending habits.

    If parents REALLY want to help; they should help the kid get a loan from the bank by co-signing it. The kid would then have just one bill to pay with a lower interest rate. That way the parents aren’t lending money; the bank is. The kid is still getting help since he wouldn’t normally be able to get a lower rate since his credit sucks.

    Everybody would win; parents’ helped by securing the loan, kid has a consolidated loan, and if there are other siblings involved, nobody can say that it is unfair because the parents didn’t give out money.

  37. My parents paid off my $2,000 credit card when I got married. That was the last time I was in debt- 1981.
    My grown children have not been in debt either- knowck on wood! My dd helped her fiance get rid of his debt before they married. They live below the poverty line- within their means.

  38. I had over 40 grand in unsecured credit card debts a year ago and I was able to get on an aggresive settlement plan I found through http://www.freerateupdate.com/creditcarddebtconsolidation and paid em off in 12 mon. My credit score took a hit temporarily but my cash flow is back to a comfortable level. My suggestion is to go with a settlement program if you are in over your head. I’ll never use a credit card again.

  39. Ed, the vast majority of “debt settlement companies” are scams that simply take your money. They’ll tell you to stop paying your debts, and stop communicating with your creditors. This will get you sued. Once you get sued, the debt settlement company can’t legally help you, because they aren’t attorneys.

    Even if they settle a debt or two, you will pay exorbitant monthly fees to them while they hold onto your money without paying you any interest. Of course, your creditors will keep charging you interest (at a default rate of about 30%), plus late fees of $39 a month. If you get any kind of a break in your settlement, it will be canceled out by all the fees and interest.

    Ed, you might be a real person or not… if you are telling the truth, you are in the minority. Do not use debt settlement companies. You will do better negotiating with your creditors on your own.

    See http://articles.moneycentral.msn.com/SavingandDebt/ManageDebt/DebtSettlementACostlyEscape.aspx

  40. I am about $110k in student loan debt. Although, I did not know what the hell I was signing at the timeI got the loans. The debt is now mine. As for credit cards, I have about 2k in debt. I think it is best for me to learn the hard way than for my parents to bail me out.

  41. We have helped my 22 year step-son in the past and I wish we didn’t! He just had to get married, even though they didn’t have a dime for the wedding; he just had to have a baby and unfortunately the baby was three weeks early which caused a lot of medical bills. They have several credit card company’s they owe a lot of money to. Not too mention how many times he would call his dad saying how broke they were and didn’t have money for formula and diapers. Now were are in the sad situation of not being able to see the grand baby because we finally refused to pay for their cell phone that was about to be cut off. (They have a house phone and as far as we are concerned, the cell phone is still a luxury.) After all that we have helped out with him financially (and the list is more like a workbook now), when we finally said enough is enough, they threw a fit and won’t talk to us!

  42. I love the article. I have to add my two cents as the mother of five , step mom to 4 more. If the charges are valid I have this equation I do I offer to help them by dividing the cost by three. Let’s say the child has books, tuition and valid food on the cards and they owe $6,000. I offer to pay $2,000 (as a gift that is me a parent helping) They can work for 1/3 and float a 1/3 that is how life works anyway.(some of the kids can ask another parent for 1/3 as well.)
    1/3 of valid charges that is my equation.

  43. I got myself into some trouble with credit card debt and needed some guidance on paying it off. I had the means to make handsome payments but the interest was killing me and I fell behind on my payments. When I (finally) told my parents about it they counseled me on what I owed, what I made and how much I could pay down every month. My credit was such that the bank wasn’t prepared to give me a consolidation loan on my own so my parents agreed to guarantee it so I could get everything I owed in one place and reduce my interest rates by an enormous margin. I don’t come from a family with money but my parents are comfortable but they’ve worked hard and I wouldn’t have taken their money to pay it back even if they’d offered. The way I see our deal is that I can actually make progress on my debt and get my life back on track and my parents are still making me pay down the whole of it. They’ve also got me signed up for financial planning classes and I’m getting a personal banker to keep track of my progress and manage my money properly. I should add that my cc debt was accrued when I finished university and couldn’t find a good job. I wasn’t charging at the Coach store. If that were the case I think my parents would have looked on the arrangements differently.

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