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When a parent ruins your credit

Dr. Don,
My parent has a credit card on a card account where I am the primary cardholder. I am 28 years old and opened this account when I was 21. Now my parent owes them $10,000, and my credit is ruined. What can I do to resolve this issue? Is there a way to give my parent full responsibility of the card?
Joe Woe

Dear Joe,
As primary cardholder, this is your credit card account. It's like co-signing a loan. You've agreed to be responsible for the debt. It's very unlikely that the credit card company would let you back away from this obligation, especially if the account is in bad standing because of your parent's missed or late payments.

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What kind of shape is the account in? Have you missed payments, incurred late or over limit fees, and seen your interest rate increase? Or are you just overwhelmed by the outstanding balance on the credit card?

Regardless, the first step is to close the account to new purchases. Do this by phone and confirm by sending a letter. You can't close the account without paying off the balance due, but you can stop new purchases.

Talk to your parent about what you can expect from them in paying down this debt. You're not letting them off the hook when it comes to paying off the balance; you're just taking the steps necessary to rebuild your credit to the point where you can hope to accomplish your financial goals.

If you can't figure out a repayment schedule, then it's time to talk to a credit counselor. Credit counselors can sometimes negotiate a reduced interest rate on your debt and may be able to get the creditor(s) to agree to partial payment in satisfaction of your debt.

Credit counseling can have a negative impact on your credit rating if your creditors report that you didn't pay your obligations as agreed. But credit counseling is better than bankruptcy because it shows a commitment to paying your debts. That commitment should help you as you rebuild your credit.

-- Posted: July 25, 2001

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