My student has accumulated credit card debt. Now what?

There is no way to water down a credit card debt situation, especially when the debt belongs to your child. It’s one of those things that can cause a huge headache.

But take a step back, take a deep breath, and count to 10. Or 50, if the debt is really bad. It won’t be easy, but there are options to consider. And no, a total financial rescue shouldn’t be part of it.

Let’s stay calm and develop a pragmatic plan to help your child without destroying your own fiscal sanity.

Look at legal liability for debt

Who owns the credit card account? Have you co-signed for the credit card? The answers to these questions will help you decide how to proceed.

In 2006, a study by Student Monitor showed that 40% of students had a Visa credit card in their name. But the Credit CARD Act of 2009 placed more restrictions on how issuers could promote credit cards to students. The CARD law also required young adults to be 21 to get a credit card, unless they could prove that they had sufficient income to cover any debt incurred.

The CARD law has apparently had an impact on the number of students with credit cards in their name. In 2016, the Student Monitor study showed that only 18% of students had a Visa card in their name. The barriers to preventing young adults from having easy access to credit cards have worked. But now there is an environment where parents may feel pressured to co-sign a credit card to help their child build up credit.

If you co-signed on your child’s credit card, you and your student are both legally responsible for the debt. If your child got the credit card on their own, only your child is responsible for the debt.

But that doesn’t mean you’re done here. In fact, you are just getting started.

Have a family reunion

Hope we talk about a maxed credit card and not a whole bunch of them. Regardless of the number of cards involved, sit down with your child and review the most recent statement. And while you’re at it, get your child’s annual credit report for free so you can go through it as well.

You both should carefully review the transactions on the monthly statements to both see how the debt has been accumulated. If both of you are responsible, explain to your child that the accumulation of credit card debt has hurt both of your credit scores.

If your own creditworthiness is at stake here, you may want to pay off some of the debt, if possible. But make it clear to your child that the amount – or at least part of it – needs to be repaid. And stick to it. Write a contract and have your child sign it so that they understand how serious it is and that you are serious.

Look, the easy way out is to pay off your kid’s debt and get on with it. But it does get your child out of the woods. Now is the perfect time to teach your child not only how to deal with this disaster, but also how to prevent it in the future.

If you have no legal obligation with the debt, then congratulate yourself for not giving in to the craze of co-signers that some parents fall into. But it’s still your job to help your child set up a debt repayment system.

Explain the facts of life about credit card debt

If you haven’t already, give your child a credit card 101 talk. According to the Council for Economic Education, only 17 states require students to take a personal finance course in high school.

So unless you’ve talked about money, chances are your kid doesn’t understand money management. Help your child create a budget that includes all expenses and sources of income. Point out that some entertainment funds will need to be reduced and then applied to the monthly debt payment.

It is also important that your child understands compound interest. Jump online and use one of the free debt repayment calculators and show your student how much interest accumulates if you only make minimum payments. This exercise alone is known to motivate people to write off their debt.

Now here is the most important thing to say to your child: Stop using your credit card until you’re completely out of debt. Seriously, your child can’t go into debt if they keep creating it. Once your child is debt free, reassess if they are ready for a credit card.

Give advice on the tools to use

You can both do your research online and decide which budget and expense tracker to use in the future. This is of vital importance for the success of your child.

It is not enough for most children to say, “Go budget and pay more than the monthly minimum”. You need to show your student how to do it. Get in the weeds with this thing and show your kid what’s in there.

For example, I often recommend Mint. It is popular and also has a phone app, which is popular with students. But there are plenty of other free apps as well, so help your kid find one that feels comfortable.

Set short and long term goals

You want to help your child decide how much to pay for the debt each month. After determining the minimum monthly payment, set up a system of due reminders, which can be done through your issuer or through a money management tool.

And don’t forget to calculate the repayment date. It may take two years, but having that goal in mind can keep your child motivated.

Also set short-term goals, such as paying a certain amount per quarter. So, every four months, if the goals are met, your child receives a reward.

I’m not talking about paying for a beach vacation for your kid. Just something like a manicure, movie passes, or tickets to a football game. These little rewards provide incentives to keep going.

It also clearly shows that you are paying attention and that you care about the outcome. Oh, and that hard work pays off, too.

Have a backup plan

If you find yourself in a situation where your child just doesn’t want to do whatever it takes to pay off their debts, then you may need to do the most difficult thing of all: get away from the drama and let it all unfold until your child is ready to face it.

Yes, his credit rating will get ugly. But sometimes these life lessons teach children how to be responsible adults.

Now, if you are also responsible for the debt, it is difficult in this situation. As mentioned earlier, it is okay to pay off the debt to get your score back as long as you put the loan in writing and get your child’s signature on the document.

It may sound cold, but we are talking about educating your child about credit. These are essential life skills to have. Sometimes tough love is what it takes to get the job done.

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