Dad Wants to Give Indebted Daughter a Lifeline
By Erica Sandberg
September 25, 2012
I’m in the same situation as Judi, who wrote to you back in May about her daughter, who has $6,000 in credit card debt. My 27-year-old daughter is $24,000 in debt and unable to pay her cards. I’m thinking the only way to get her straight is to co-sign a loan with payments coming right out of her paycheck. What do you think? — Jim
Why (oh why) would you even consider linking your credit to someone who has proven to be a poor lending risk? Never mind, I know and understand. It’s because she is your daughter and you love her. Wanting to throw her a lifeline when she’s drowning is a normal reaction. However, the fact that she’s in financial trouble now — and might very well have a long history of getting into it — is why you probably shouldn’t.
Now I am not implying that you shouldn’t help your child. But I do believe that co-signing is foolish for you and even harmful in the long run for her. The words you wrote, “unable to pay her cards,” says it all.
As an experiment, try channeling the mindset of a neutral lender. If your daughter were to apply for a loan at a bank, they’d either bang the “denied” rubber stamp down, charge her dearly with a high interest rate or require some sort of collateral to guarantee that they’d be paid back.
By checking your daughter’s current credit report, scores and income, the bank would see immediately that lending to her would be a risky venture for them, as it would be for you. If you were to co-sign, you would be liable for her debt. You may feel secure that you’ll be repaid while she’s working, but as we all know, employment is hardly guaranteed, especially in this economy.
Consider the variables. What would happen if your daughter lost her job? You’d be stuck with the bill. That’s a large amount of money to fall on your shoulders. And if you couldn’t afford the payments, serious repercussions would result. For example, missed payments and delinquent debt would result in credit damage (both to your daughter’s and your own credit history and scores). Don’t pay at all, and the debt would go to a collection agency or you could even be sued.
I’m not a gambling woman, but even if I was, I certainly would not place a bet that this arrangement would work out to your advantage.
So why would you helping your daughter in this way be a problem for her? Mainly because she is an adult and it would be best if she deal with her financial problems head-on. Yes, everyone has a time of need, and a helping hand is lovely. But it can also be damaging. She’s working, and if she can afford to pay you from her salary, she can afford to pay her creditors. You acting as an intermediary is mucking up the situation.
What happens if she doesn’t pay off her debt? The same things that would happen if you didn’t: harsh reality. Those looming consequences should be enough to motivate her to get her finances in order and pay back what she owes.
There are other ways to be of service. You can teach her about credit and money management. If she doesn’t want a lesson, how about leading her here, to this site, where she can learn on her own?