Helping Your Child Manage Debt
Posted on Monday, June 18, 2018 Share
One of the unexpected outcomes of your child going off to college is an increased interest in him or her by credit card companies. Why would credit card companies be interested in children with little or no income? They realize that most parents will step in and help if a child gets into too much debt. Also, the company realizes that your college-bound child is likely to complete college and go on to get a good job. Establishing a relationship now will often result in a long-term customer.
While you may not be excited that your child is off on his or her own with a credit card, the odds are it will happen. Your job is to help them learn how to handle that credit responsibly, so they don't turn into a scary statistic. Although young people seem to be getting smarter about credit, the average graduating college senior does carry a credit card balance, possibly of thousands of dollars. Consider the following tips to help your child manage credit responsibly:
Help your child select an appropriate credit card. Try to convince your child to get a debit card instead of a credit card, so he or she can't get into too much debt. If your child insists on a credit card anyway, you should help select it. Once your child has collected several credit card offers, go through them, comparing interest rates, annual fees, grace periods, and penalties.
Explain the basics of credit card debt. Make sure your child understands that if the balance isn't paid in full each month, a significant amount of interest will be paid on the outstanding balance. Many lenders have lowered the minimum monthly payment over the years to increase the amount of interest paid. The lower the payment, the faster the interest mounts. If you teach your child nothing else, try to instill the concept of paying credit card balances off in full every month.
Counsel your child to use credit cards only for major purchases, not to fund luxuries. Credit cards can be used for things like book purchases or car repairs, but should be avoided for dining out and entertainment.
Review your child's credit card statement every month. Show your child how to compare receipts to the credit card statements. Go over all purchases and explain how credit cards can increase impulse purchases.
Posted in Tax Topics For Individuals
Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.