Top Credit Questions Answered Part 2: Handling Debt
written by Credit-HQ ExpertEven though your credit card stays in your wallet, how credit is used can have an effect on the entire family. As your kids grow up or as you get involved in the financial affairs of extended family, you may need to bring some of the wisdom you have developed about how to deal with credit issues into family decisions to be made. Here are a few of the top questions that come up when it comes to dealing with credit issues in the family setting.
Family Debt: How can I help out my adult child if he or she has fallen into a lot of debt?
We all know that just because your child is an adult, they still need mom and dad sometimes. Debt management is a skill so you can use their plight as a teaching opportunity.
However, if your child has called with that panic voice about the debt he or she owes, it’s easy to want to bail them out. But being your child’s safety net may or may not be the right idea.
Before you rush to a child’s financial rescue, be the counselor they need in a parent. He or she may just need some lessons in how to manage money. An afternoon helping the youngster set up plan for living on the income he or she has may be all that is needed.
If after some counseling, it is clear you do need to get involved to bail out a troubled kiddo, it might be better to give them the money rather than set it up like a loan. If you loan him or her the money, that could cause bad feelings when you have to become a creditor to your own child.
If giving the child a loan is the best way to help, the loan can be structured like a formal loan using a loan service that will handle the billing, the interest calculation and the collection. That way, you remove the loan from your parent/child relationship and it is just another bill the youngster has to pay.
Inherited Debt: What are my options if I inherit a lot of debt from when my parent or spouse passed away?
If the loved one who passed on is a parent or sibling, their debt is not transferable to his or her children or siblings. So don’t let the creditors of your loved one try to collect from you because that debt is not your responsibility. If the debt belonged to your husband or wife, it depends on if the state you live in is a community property state. If so, the debt of your spouse is now your property so you are responsible to pay it off.
Many creditors will not go after the debt of someone if they die. If they do, the co-signers to the loan that is owed to the creditor are the ones who will be responsible for the debt. If you feel you are being harassed for a debt of a loved one who passed away and you are not accountable for that debt, get some help from a lawyer because something can be done to make them stop.
Senior Citizen Debt: What can be done for an elderly loved one who is on a fixed income and he or she is being harassed by credit card companies for debts they cannot pay back?
People who are no longer producing income and are living on retirement accounts and social security are protected so they are not responsible for old debts. They are “judgment proof” because even if the credit card company did sue, social security and most retirement accounts cannot be seized to pay old credit card debts. You may feel inclined to help your elderly loved one file for bankruptcy but that is not necessary because they are already protected from legal action by creditors.
If the retired person still has assets like property or bank account monies that are not protected, you are smart to get some help from a lawyer. In most cases if you just write a letter to the credit card company or the collection agency explaining that there are no assets available to pay the debt, that is sufficient to stop the phone calls and letters. Be direct when you write to them in asking them to stop pursuing the debt. In most cases, they will write off the debt and forget about it. But keep copies of your letter and any interaction that happens with the creditor in case you need to use that in a legal action if things get worse.
Credit Problems Due to Cosigning for My Child: If I discover that I have a credit problem because I co-signed on a loan for my child and he or she has not been making payments on the loan on time, what can I do to repair my credit score so my child’s poor judgment doesn’t hurt my financial standing?
This is the problem with co-signing for a youngster who may not be ready to make wise financial choices. Co-signing makes you responsible for your child’s debt if they don’t make the payments, which ties you and your son or daughter together financially. That means that late payments on that loan will hit your credit report and hurt your ability to use your credit. It’s good to know that before you co-sign on the debt because if the damage is done to your credit report, that is just a byproduct of co-signing in the first place.
The best course of action you have is to first work with your child so he or she does not make payments late on that loan any more. You might monitor how the child is doing making those payments for a few months just to make sure the debt is being handled. Then you might contact the credit institution that is carrying the loan to talk about the situation. If they see that you are going to manage the account more proactively, they may be open to removing the negative mark on your credit rating. You might even set it up that if the loan is not paid on time, you get contacted as well as your child so problems don’t sneak up on you in the future.
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