My Child Has a Lot of Debt, How Can I Help?

It’s common for parents to want to provide financial assistance to their children, especially if they’re currently struggling with debt.

So here are a couple of suggestions on how you should be helping them cope with an overwhelming amount of debt.

Tell them they don’t have to face it alone

Debt can be a huge problem that causes financial strife but also depression and other related mental health concerns.

One of the first things you should do is reassure your child that debt isn’t a problem they should be facing alone.

By supporting your child, you can help ensure that they don’t make the same financial mistakes again in the future, and also provide them with the assistance they need to get out of their debt problem with minimal stress.

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Get to the bottom of how severe the debt is

When offering help, the first thing you should do is understand how severe the debt problem actually is and what has caused it.

While a lot of debt is caused by poor budget management, there could be other causes that lead to it happening.

For instance, it could be an unexpected issue like losing their job, a medical problem, divorce or even a home-related accident that led to a hefty repair bill.

While it can be difficult to speak to your child about their debt situation, it’s important for you to understand how the problem occurred so that you can devise a strategy to prevent it from happening again.

Understanding the mistake is just as important as finding the solution.

Educating your child about budget management

In most cases, debt usually occurs due to poor budget management.

While it’s difficult to identify the exact source of their debt, there’s a good chance that it’s happened due to a lack of proper budget management.

Because of this, we feel that it’s vital that you teach them how to properly budget, how to calculate expenses and teach them about useful tools that can help them review their budget.

While it can be tempting to just pay for your child’s debts and bail them out of a troubling financial situation, it doesn’t teach them how to manage their money properly and will usually result in them falling back into the same habits.

As such, educating your child about budget management and providing them with the knowledge and tools to get out of it themselves will better prepare them for the future.

It’s important to encourage your children to not rely on you for their financial concerns and to provide them with a solid financial foundation where they can successfully avoid debt and cope with it if necessary.

Help your child understand the options they have

When helping your child deal with their debts, it’s important that you teach them about the options they have.

In most cases, you should hope to be able to deal with their debt problem with proper budget management, cutting down on unnecessary expenses and helping them track their expenses.

However, there may be cases where you’ll need to help them understand debt consolidation, debt relief or even cosign a loan for them to pay off their debts.

Explaining how debt consolidation and debt management works can help your child understand the options they have to seek debt relief in the future.

While you could bail them out now, it’s important that they understand the process involved in seeking debt relief so they have the knowledge they need to solve debt problems on their own.

Is loaning money to your child a good idea?

While many parents find it acceptable to simply give their child money as a gift to cover their debts, other parents might find it more acceptable to approach it formally.

This involves loaning your child money and expecting it to be repaid through proper channels.

This can be important if you want to remove the emotional connection from the money since it can often result in disputes and family-related tensions.

If you’re satisfied with the idea of formally entering a temporary loan with your child, make sure you approach it through the right channels.

However, it’s important to be cautious in the event that your child’s situation continues to worsen.

You may want to seek alternate options to loan your child money, such as speaking to lawyers about registering the loan as a secured loan on your child’s home should they own one.

Cosigning a consolidation loan

Your child might also approach you about cosigning a consolidation loan for them.

This means that you’ll also be responsible for the debt if your child cannot pay it back.

Be careful with this, as it gives the lender full rights to pursue both you and your child for the loan.

If you can’t pay this back or have little faith that your child’s financial situation will improve, then you can decline this.

While it can be difficult to say no to your own children, it’s important to teach your child about the responsibilities involved in managing their budget.

If your child cannot pay back the full loan amount, you’ll be expected to cover the payments.

As such, if your child signs up for a loan that is above what you can afford, we highly suggest that you think carefully before entering such an agreement.

What to do now

While discussing financial issues with your child can be challenging, it’s important to be open, transparent and hold back any condescending comments.

It’s important to educate your child, teach them about the professional help they can seek for debt relief, and ultimately deal with their debt-related issues on their own.

If you’d like to learn more about helping your child with debt, don’t hesitate to get in touch with us today.

Information on Consumer Proposals

Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
How to Amend a Consumer Proposal
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
Consumer Proposal Eligibility
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?

Canadian Bankruptcies

How to File for Bankruptcy
What is Bankruptcy?
Bankruptcy FAQs
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?

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