This Is What Happens When Financially Immature Students Get a Credit Card
Our kids are fortunate to be growing up in the most progressive and exciting time in history. Sadly, the very culture that offers them the world is also perpetrating this lie: You are entitled to have everything you want even if you don’t have the money to pay for it. It’s not a problem. You deserve it. Get it now and you can pay for it later!
There’s a huge consumer-credit industry out there planning to give your kids their very own credit cards—personal passports into the abyss of consumer debt. This will not require your permission or approval, something that one reader is experiencing first hand.
Dear Mary:Â My daughter who is in college got a credit card and now she is in over her head, unable to pay what she owes.
She works part-time and makes a very small salary. With the high interest and late fees, the balance is now over $2,500. I will have to step in and handle the account.
How can I negotiate with the credit card company to settle for less? I don’t know how she got this card on her salary but she kept quiet about not being able to make the payments until we started getting collection calls for her. I appreciate your thoughts and expertise. Millie
Dear Millie: Honestly, I doubt very much if anyone will speak with you at customer service because you are not on the account. If your daughter wants to add you to the account, that might be an option. And I’m sure the company may welcome that, particularly if they’ve had a lot of trouble working with her.
Credit card issuing companies give young people who are enrolled in college outlandish lines of credit because they know parents will rescue their over-extended kids and not just one time. Recent data and a variety of studies indicate that parents who bail a kid out of credit card debt once are far more likely to do it again—for a total of 2.4 times on average.
May I step in here with some unsolicited advice? Don’t do it. Don’t bail her out even if you feel you can afford it.
Unless your daughter has to suffer the consequences of her actions she will not learn. Even if you were to bail her out now, I predict that within two years she will be $5,000 in credit-card debt. Unless she does the hard work to repay her debt, she will not learn from her mistake.
You don’t want to see bankruptcy and/or divorce in her future but that’s exactly where she’s headed if this problem isn’t addressed now.
For parents in your situation who cannot be deterred from performing this kind of financial rescue, there is something monumental they need to ask themselves: Can we afford it?
Frequently, I hear from readers who are facing their own financial problems—often a result of trying to help their kids. For certain, parents should not even think about paying off their children’s debts—or co-signing a loan—if they don’t have a sound retirement plan in place for themselves.
Unless you have your retirement on track, then to me, that’s the end of the discussion. Retirement pensions aren’t what they used to be. Social Security is not going to provide the same kind of income that previous generations had. No one is going to be there to help you.
As painful as it will be for you to step aside and not rescue your daughter, this could become a valuable maturing process to allow this child to become a responsible adult.
Your daughter may have to drop out of school to go to work full-time. If she’s really interested in getting an education, she’ll be back.
That may sound harsh, but she has to understand how unacceptable this is and that no one is going to bail her out.
Last, make sure you are ready to offer lots of emotional support and encouragement. And it wouldn’t hurt to have resources handy when she is ready to accept help.
My first recommendation would be the National Foundation for Credit Counseling. Oh, how I respect and support this fine organization, which has been around for many years—certifying Consumer Credit Counseling Services (CCCS) offices in nearly every city across the country.
I would suggest that she go to NFCC.org to get in touch with a qualified counselor. After an initial interview, should she be accepted into a debt management program, she’ll get invaluable support, reliable guidance, and excellent financial education, too. Credit counseling from NFCC is like having a personal trainer for your finances.
Between your daughter’s debt and the hard work ahead as she gets out of this mess on her own, she will mature right before your very eyes.
If she’ll read a book, I can recommend some good ones 😉.
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Nope, do NOT bail her out. She made a decision as an adult and now she will have to find the solution as an adult. $2,500 is not an impossible sum. Drop out of school for a semester and work like a maniac and pay it off, Lesson learned.
Mary
You didn’t mention the effect on siblings. Will the help for one child make it more difficult for parents to help a younger child(ren) with their education to the same degree? I’m an only child so this wasn’t an issue, but if I had a $ for every time a friend or colleague has told me about how they’re struggling but doing it on their own dime while parents ‘reward’ their feckless sibs or the child who provided the first grandchild or grandson, I’d be a rich woman now. On top of giving one child thousands or tens of thousands, at the end of the day parents tend to divide their estate equally among their children. If you want to start a family feud among your kids, just keep helping out the child who won’t manage at the expense of your other children. This of course doesn’t apply if your child, their spouse or your grandchild has expensive medical or special needs that aren’t covered by insurance. But even then, you need to make sure that everyone knows why you’re helping one child and you better be prepared to help another child to the same degree if their situation changes.
We learned this lesson the hard way 20 yrs ago when one of our children used a credit card we’d given her for school supplies and books to make a down payment on a car! Needless to say, we took that credit card away from her and set up a repayment plan for her to return the money. When my next child was going to college, we got him a USAA College card. It had a low ceiling of $300 his freshman year, $400 his 2nd year, etc. It was just enough to buy books and have on hand for car emergencies since he commuted. I don’t know if these types of credit cards exist anymore, but it was a great way to teach kids about credit cards. I totally agree with Mary’s advice on this one.
I needed that advice today. I have put thousands of dollars into bailing out my oldest daughter and yet they keep going deeper and deeper in debt. I feel guilty if I don’t want to help her, but I’m 70 years old and I need to think about how much money I’m going to need in the years ahead. She is 40 years old and it’s probably time she figured it all out.
Stop helping her. She’ll learn to manage her money and spend wisely when she knows she can’t depend on you. My son has been married for 20 years but it’s only been the last 5 years that we cut him off entirely. He has 3 kids, and I love them dearly, BUT, they are his responsibility, nor mine:)
Loved your answer, only the retirement paragraphs seemed to contradict the rest of what you were saying. Regardless of how wealthy the parents are, I think it’s much more likely that bailing out the child (and that’s what she’s behaving like, regardless of her years) will hurt the chid more than it will help her. She needs to learn. I’m speaking as a former child who had to grow up. 🙂
I think Mary meant that Millie shouldn’t use money that she had set aside for her retirement to bail her daughter out, because Social Security and pensions just aren’t the safety nets they used to be anymore. Of course, I’m Canadian, so don’t know much about American pensions or Social Security. Up here it’s called Old Age Security and people living on it and nothing else are basically living on poverty wages.
I have to disagree here. I was once that daughter in debt. Though I was long out of college and instead the debt had to do with vet bills that piled up. My parents bailed me out and I have been forever grateful with a lesson learned. And more than 20 years later I haven’t had any debt since! I use my credit cards quite a lot, but never for an amount that can’t be paid off in one or two billing cycles. I’m not lying – my husband and I have zero debt. Granted, we don’t own a home, but we have enough savings to last more than 6 months, both of us have credit scores over 800, money going into a 401k and IRAs, both cars are paid for, and all credit cards are almost always paid in full each month. And I have my parents to thank for this!
You’re the exception, not the rule. Plenty of people can and will take advantage of parents or some other relative who will “save” them financially. One of my older sisters and her husband kept having to be “saved” by my parents. The only time it was ever debt, was once when they had bought a house that was too expensive for them and things came crashing down for them. They either couldn’t pay the mortgage, or the mortgage was the only thing they could pay for, all other bills went unpaid. I think my parents had given them money before this to get out of some scrape or another. And they did after, to the point that my parents gave them money one last time, and told them to either sink, or start swimming.
u can disagree all ya want. mary is correct. i have numerous friends who’s children got them in debt. not once, but several times. despite professional counsel, they bailed them out. three of these “children” have been thru bankruptcy, etc. i not only refused to help my daughter, i DID NOT PAY F0R HER COLLEGE. she paid for it. she recently gave me jewelry inscribed “All I am, You helped me to be I LOVE YOU MOM.” certainly circumstances alter cases, there a times a child needs help and they should b helped, but not when the behavior is detrimental and repeated. let them work and learn.
My only question is… did you pay back your parents? And if so, did you pay back with even a token amount of interest to show gratitude for them bailing you out?
I wholeheartedly agree with you! I got in over my head as a young person, my mom advised me to get credit cards to build up my credit. EEK! It took a lot of hard work to get out and I will never get into debt again. My parents did bail me out (twice) so the stats are right on. I’m raising my children with a healthy respect for money and living beneath their means. I must give kudos to you, Mary, I found your blog and now we are completely debt free! Thank you!