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You'll regret bailing out a child in debt
Dear Dollar Diva,
My son has created a credit card debt of $43,000 spread among nine
different credit card companies.
He went to a debt consolidation company he found on
the Internet and got scammed. He is now working through a collection
agency in Florida and is told that many credit card companies will
settle for 50 percent to 70 percent of what is owed.
This company tells him that $23,000 will pay off the
$43,000 debt, and he's asking us to help him come up with the money.
If we borrow the $23,000 and give it to him, how do we know he won't
get scammed again?
What is the best way to pay off this enormous bill?
He has no assets but a good job. He brings home $3,000 a month.
What do you advise?
Steve
Dear Steve,
Children get stronger when we trust them to solve their own problems;
they get weaker when we bail them out. Fortunately, you don't have
an excess $23,000 sitting in a savings account. Even when we know
it's the right thing to do, saying no to a child is very hard.
Borrowing money never cures a debt problem -- at most
it shifts the burden. Even if your son says he'll pay you back,
don't count on it; he's a lousy risk, and you'll probably end up
holding the bag. Unless he makes major lifestyle changes, he'll
almost certainly boomerang back into debt, and you'll face the same
dilemma again.
Your son is in serious financial trouble if he has
collection agencies on his tail. If he can't figure out how to get
out of this mess, he should contact a nonprofit Consumer Credit
Counseling Service (CCCS) for help. The National
Foundation for Credit Counseling Web site will help him find
one in his neighborhood.
A CCCS will work with his creditors to reduce or waive
finance charges and work out an affordable repayment schedule. To
learn more about this organization read the Diva's "What
to expect from credit counseling" and "What
are Consumer Credit Counseling Service agencies?"
A CCCS will not scam your son, but it's not going
to bail him out either. He will be expected to stop using credit
and tighten his belt so he can pay his debts as quickly as possible.
Since a CCCS is a nonprofit agency, initial consultations are free
and fees for services are minimal.
If he enters a debt management program, he should
make sure the agency passes along payments to creditors and that
creditors are reporting these payments to credit reporting agencies
-- the key to restoring your son's credit rating. Everyone makes
mistakes, including these agencies, so he should monitor them.
Your son is not the first child in the world to get
himself into financial trouble, and you're not the first parent
in the world to experience angst from it. In the Diva's "Your
son's money troubles are his own," she gives another parent
the same advice she's giving you: The problem belongs to your son,
not you -- let go of it.
-- Posted: July 5, 2001
 DOROTHY
ROSEN has a master's degree in finance, with a specialization in
accounting, from the Kellogg Graduate School at Northwestern University
in Evanston, Ill. Rosen has more than 15 years of experience in
the financial arena, serving in Illinois and Florida as a certified
public accountant, financial consultant, expert witness and educator.
She is owner of Dorothy Rosen, CPA, a public accounting firm that
serves individuals and small businesses.
-- Posted: July 5, 2001 |
