My College Student Racked Up Credit Card Debt. Now What?

There’s no way to sugarcoat a credit card debt situation, especially when the debt belongs to your kid. It’s one of those things that can bring on a giant headache.

But step back, take a deep breath and count to 10. Or 50, if the debt is really bad. This isn’t going to be easy, but there are options for you to consider. And no, a total financial rescue should not be one of them.

Let’s stay calm and develop a no-nonsense plan to help your child without destroying your own fiscal sanity.

Look at the Legal Liability for the Debt

Who owns the credit card account? Did you co-sign for the credit card? The answers to these questions will help you decide how to proceed.

In 2006, a Student Monitor study showed, 40 percent of college students had a Visa credit card in their own name. But the Credit CARD Act of 2009 placed more restrictions on the way issuers could promote credit cards to college students. The CARD Act also required young adults to be 21 years old to get a credit card unless they could show they had enough income to cover any debt they incurred.

The CARD Act apparently had an impact on the number of students with credit cards in their own names. In 2016, the Student Monitor study showed, only 18 percent of students had Visa cards in their own names. The barriers to prevent young adults from having easy access to credit cards worked. But now, there’s an environment where parents might feel compelled to co-sign on a credit card to help their child build credit.

[Read: The Best Starter Cards for Building Your Credit.]

If you co-signed on your child’s credit card, then you and your college student are both legally liable for the debt. If your child got the credit card on his or her own, then only your child is responsible for the debt.

But that doesn’t mean you’re done here. Actually, you’re just getting started.

Have a Family Meeting

Hopefully, we’re talking about one maxed credit card and not a whole slew of them. Whatever the number of cards involved, sit down with your child and go over the most recent statement. And while you’re at it, obtain your kid’s free annual credit report so you can go over that, too.

Both of you need to take a hard look at the transactions listed on the monthly statements so you can both see how the debt was accumulated. If you’re both liable, explain to your kid that racking up credit card debt has hurt both of your credit scores.

If your own creditworthiness is at stake here, you might want to pay down some of the debt, if possible. But make it clear to your child that the amount — or at least part of it — must be repaid. And stick to it. Draw up a contract, and have your child sign it so that he or she understands how serious this is and that you mean business.

Listen, the easy way out is to pay off your kid’s debt and move on. But that lets your kid off the hook. This is the perfect time to teach your child not only how to deal with this disaster but also how to prevent it in the future.

If you have no legal obligation with the debt, then pat yourself on the back for not giving in to the co-signer craze that some parents fall into. But it’s still your job to help your child set up a system for paying off the debt.

Explain the Credit Card Debt Facts of Life

If you haven’t already done so, give your child a Credit Cards 101 talk. Only 17 states require students to take a personal finance course in high school, according to the Council for Economic Education.

[Read: The 10 Best Public Universities in America.]

So, unless you’ve had the money talk, chances are your kid doesn’t understand money management. Help your kid set up a budget that includes all expenses and all sources of income. Stress that some entertainment funds will have to be reduced and then applied to the monthly payment for the debt.

It’s also important that your child understands compound interest. Hop online and use one of the free debt payoff calculators and show your college student how much interest piles up if you make only minimum payments. That exercise alone has been known to motivate people to wipe out their debt.

Now, here’s the most important thing to say to your kid: Do not use your credit card again until you are completely out of debt. Seriously, your kid can’t get out of debt if he or she keeps creating it. Once your kid is out of debt, re-evaluate whether the child is ready for a credit card.

Give Advice About Tools to Use

The two of you can do some research online and decide what budget and expense tracking tool to use going forward. This is vitally important to your child’s success.

It’s not enough with most kids to say, “Go set up a budget and pay more than the monthly minimum.” You need to show your college student how to do it. Get in the weeds with this thing and show your kid what’s out there.

For instance, I often recommend Mint. It’s popular and also offers a phone app, which appeals to college students. But there are many other free apps out there, too, so help your kid find one that feels comfortable.

Set Up Short-Term and Long-Term Goals

You want to help your child decide how much he or she can pay toward the debt each month. After you determine the monthly minimum payment, set up a system of payment-due reminders, which can be done through your issuer or via a money management tool.

And don’t forget to calculate the payoff date. It might be two years away, but having that goal in mind can keep your kid motivated.

Also, set up some short-term goals, such as paying off a certain amount per quarter. So, every four months, if the goals are met, your child gets a reward.

I’m not talking about paying for a beach vacation for your kid. Just something along the lines of a manicure, movie passes or tickets to a football game. These little rewards offer incentives to keep at it.

[Read: The Best Student Credit Cards of 2018.]

It also makes it clear that you’re paying attention and that you care about the outcome. Oh, and that hard work pays off, too.

Have a Backup Plan

If you have a situation where your child just doesn’t want to do what’s required to get out of debt, then you might need to do the toughest thing of all: Step away from the drama and let it all play out until your kid is ready to deal with it.

Yes, his or her credit score will get ugly. But sometimes, these life lessons teach kids how to be responsible adults.

Now, if you are also responsible for the debt, that’s a tough one in this situation. As mentioned before, it’s OK to pay down the debt to salvage your score as long as you put the loan in writing and get your child’s signature on the document.

That may sound cold, but we’re talking about educating your kid about credit. These are essential life skills to have. Sometimes, tough love is what it takes to get the job done.

By the way, if your child is considering transferring to a different school, check out U.S. News’ 2019 Best Colleges rankings.

More from U.S. News

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The Best Ways to Build Credit Without a Credit Card

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My College Student Racked Up Credit Card Debt. Now What? originally appeared on usnews.com