Many of us wish to become debt free. So what are some ways to break out of the debt cycle? If you’ve got a child in debt, here are some ways to help them escape the rut.
Let’s look at an interesting situation. So you may think that your kids are finally independent; they’ve graduated from college, found work, got some credit cards and maybe got married. Could it be time for you and your spouse to enjoy life without offspring concerns? It should finally be time to plan that Alaskan cruise you always wanted; time to take a trip to the Vatican and admire 2,000 years of accumulated art and splendor; time to finally buy that small fishing cabin that Dad has been dreaming about. Time to… wait a minute! You suddenly find out that your daughter just got laid off and has a mountain of debt; she is coming back home to live with her parents (that’s you!) with her three kids. What can you do to help her? Or should you do anything?
“The First National Bank of Mom and Dad may get the creditors off her back, but unless the debt and responsibility lesson is learned, the cycle will continue,” says Blankenship on CNN Money. He is talking about the vicious cycle of spending more than they can afford; many young people suffer the experience when they haven’t learned how to budget their income. How should parents behave in these cases? Should they pay their child’s debts, or at least pay enough to ease his or her immediate concerns? Or should they teach them a lesson and let them flounder in the muddy waters of excessive debt?
Debt Solutions To Break Out Of The Debt Cycle
Not all debts are created equal. If your daughter gets money from a local loan shark — let’s say those payday loans — you’d better pay that debt immediately or else let her face the prospect of paying 500% interest (no kidding). So yes, help your child with that if you can. But if she owes a student loan, don’t worry too much. There are ways to ask for an extension. On the other hand, if your daughter spent foolishly on expensive cars and/or baubles, let her face the consequences. She has to learn how to face the music because one day you won’t be there to help out.
Establish Financial Priorities
What your daughter must learn first of all is to prioritize expenses, which essentially means setting up a budget. You may want to look into a budget application like YNAB, which we often mention on this site.
“We have to stop and prioritize. Food is first, then lights, then the house, then transportation. Until you do those things, you don’t do anything. It’s only after those things that the student loan and family loan get paid,” advises Dave Ramsey. If you offer your daughter a permanent refuge, she’ll pretty soon become a fixture in your home and in your wallet. Before asking her to leave, make sure she gets child support from the deadbeat she married.
Help Negotiate the Debt
Your first step as parents after establishing priorities is to sit down with your child and negotiate her debts… with her. She has to play a very important role in repaying creditors. Whatever amount you can give her must be defined as a loan or as a gift. If you have doubts, do not give her the cash, but pay the debt yourself. I know it sounds bad, but maybe your daughter needs to learn how to be responsible financially. You must also make clear that she has to show initiative in solving her economic problems. How much will she contribute? Will she look assiduously for a job? How long will she stay in your home?
Handling Financial Emotions
It is terribly difficult to say to a child that he or she must leave the home. I have a colleague (a lady) who still lives with her parents and she is 31 years old. I have asked her several times (indirectly and diplomatically) whether she was planning to move out and, every time, she would assure me that she was working on it. After 5 years, she still says that she will move out very soon. If nothing changes here, then how else is she going to learn to be independent? You can still protect your child in case of emergency, but if he or she doesn’t learn how to fly, what will happen when you are no longer around?
Copyright © 2010 The Digerati Life. All Rights Reserved.
{ 13 comments… read them below or add one }
My parents dealt with the risk of children moving back home by selling the house and moving to an apartment that has no spare bedroom (only a single fold out bed in my father’s office) as soon as the last child had moved out. They were pretty clear why they were doing it too.
The one thing that parent’s should not do is impoversh themselves to support an adult child. It is a universal truth that a single parent can support multiple children as and when required but that multiple children are incapable of supporting a single aged parent in any circumstances.
The amount of damage an older delinquent child can inflict on parents who are already smi-retired or worse, fully retired, is downright scary. I like the tough love approach being touted here, as otherwise the lesson will not be learnt, and the next crises will be for the account of the parental units again.
I was one of those newly-divorced women who moved back in with her parents with a child in tow plus debt. Once I managed to get my mental balance back (which I admit took a while – thanks Mom and Dad!) I got a real job and and paid off my debt. I paid rent too. Also, my parents made it clear that they weren’t my daycare.
It’s important to establish boundaries in these situations. Adult children need to remember that adding people to a household costs money – utilities, food, etc. It also takes up space that your parents would have to themselves. Remember, they don’t owe you anything. If they let you move back in, it is a favor – taking advantage of their generosity and leeching off them permanently is selfish and spoiled.
Develop some better habits, if you can control your spending you will eventually get out of the debt cycle.
My wife and I often contemplate moving to a smaller house, maybe in another state, in a few years when our kids are grown and on their own. But as they get older, and as we see so many “boomerang kids” (kids coming back to the nest) we’re seriously rethinking the smaller house idea.
If the house we have is big enough for one of the kids–and maybe a little one (or two) in tow–that may be the best thing we can do. If we can’t provide direct monetary support, giving them a low cost or free place to live for a time maybe the most economical action we can take for all concerned. Now the physical part of living together again… that’s another story.
But with the seeming permanent uncertainty in the economy and especially the job market, this is something that maybe needs to be considered in future plans. Not pretty, but life often isn’t.
Great blog Jacques. Oftentimes in our practice, I do counseling sessions for parents who were on the cusp of “living the good life” into retirement when a crisis with the children dragged them back to being Mommy and Daddy. One thing we teach our clients is to learn the four words no parent wants to mutter to a child: “we-can’t-afford-it.”
Once the parent learns that it is OK to put themselves first, it’s not about a lack of love but survival. Teaching your children from a very early age as in an article I wrote some time ago for Rivertown Magazine — about finances — intills a very real sense of values and knowledge. My favorite saying about our loving kids? “They move out, but they never leave!”
Let them learn there lessons, but offer advice always, and money sparingly, I agree!
John DeFlumeri Jr
Great Article, I like how you talked about it from a different perspective, because there are a lot of parents out there with kids who fell into the debt cycle. Also, thanks for being a sponsor for the Money Crashers giveaway!
getting out of debt should be one of the things that people yearning for financial freedom should tackle with all they got before the year is out. because if this issue is procrastinated over and over again, life will lose its lustre very quick. trust me i know
I went through a period of a year where I was up to my eyeballs in debt. The only way out it to PLAN!! At the time I was miserable but things change and time moves on. Today I’ve learned how to control my spending and make better budgets.
My husband and I are soon going to be moving in with his parents for two years while he gets a 2 year tech degree that will hopefully yield better job results than his 4 year degree has (sad isn’t it). We have debt mostly because of two time periods where we were both out of jobs at the same time. A small fraction was for computers and gifts.
His parents are not allowing any break – he must begin school immediately upon moving in. They would support us longer if needed, I’m sure, but neither party wants that. We are as interested in our independence as they are in theirs. I have no doubt that this 2 year break will result in huge success, both in eliminating debt and in our career aspirations.
So after sharing my story, I just want to say that we very much appreciate his parents’ offer to help us. And we’re tired of needing help. Between that and their particular requirements for living there rent-free, there will definitely be no taking advantage of the situation. Hopefully all parents out there are willing to help their children when in need, but will also exert a tough love approach where they assign requirements and deadlines. This will help both parties.
I owned a mortgage company and development company for 18 years and can’t emphasize enough how important it is to teach about debt management and the long term downside of taking on debt at an early age. Creating budgets and installing a savings mentality is the way to go.
It should be against the law to live without having a job. I guess that is Socialism. I am sure it would beat those who do not want to work and at the same time accommodate those who legitimately need a break. Life can be really tough at times. Count your blessings if you are not in that boat.