The Money Couple Minute - To Bail or Not To Bail: 5 Questions Every Parent Needs to Ask Before Helping a Child Get Out of Debt Plus ABC News Interview

We don't sound the debt alarm very often, but when it comes to young adult children asking their parents for help with debt, well, the alarm bells start ringing!

These days, even 19-year-olds can be riddled with debt. Student loans, car loans, credit card debt can add up quickly, leaving young people buried in debt before they've even cashed their first paychecks. Sadly, debt follows young people for a long time. Take a look at these sobering statistics:

• Sallie Mae reports that the average amount of credit card debt held by college graduates is $3,173 (USA Today).



• The average student loan after graduation is $23,000 (projectonstudentdebt.org).



• 10% of college students graduated with a minimum of $39,300 in debt (accepted.com).



• One out of every five students default on their student loans (projectonstudentdebt.org).

As parents, you have to make some tough decisions about how much help to give your child when she ends up deep in debt. Before you write a check, ask yourselves these questions:

1. Where did this debt come from? Is your child spending money on clothes, Starbucks, and nights out with friends, or is her debt the result of something less predictable-medical expenses, a change in her housing situation, the loss of a job, an added class? If your child has ended up in debt because of unforeseen circumstances and you're able to help her out, do it. If the debt is the result of careless spending, this would be a great time to help her learn how to live within her means.



2. Have we bailed our child out before? Every young adult will run into money problems sooner or later-it's part of growing up. But if your child has chronic money problems and can't seem to work them out on his own, it's time for you to seriously consider how much longer you will help him out of a jam. If this is a pattern, your child needs a financial education, not a handout.



3. How can we help our child think differently about spending, saving, and debt? If you don't know your child's money personality, this is great time to figure it out. If your child is a Spender, help her understand her natural propensity towards debt and work out a plan to help her spend within her means. If he is a Risk Taker, explain how saving more now can help him make smarter investments later. Once you and your child understand how she approaches financial issues, you can find ways to help her deal with her current debt and avoid getting stuck in it again.



4. When should reality hit? If you're child is spending like crazy, it might be tempting to cut her off and leave her to deal with the consequences. But not every young adult is ready for total financial independence. Most will need to take on a little bit of responsibility at a time. Start your child on the road to independence by going over any credit card statements with her. If you haven't already, explain how credit card companies make money and how much the interest really costs. Help her prioritize her spending and even make a budget. And be transparent: If you have had challenges with debt, share your experience. Show your child there's no shame in debt, especially when she can figure out how to pay it off.



5. How can we use this conversation to strengthen our relationship with our child? Your attitude will speak volumes to your child. Make sure you stay calm as you talk about your child's debt. If you decide to bail him out, explain your decision and what you expect in return for your help. If you say no, explain that decision as well and offer your help in working out a plan for paying off the debt. Make sure you and your partner are both involved in these conversations--a united front tells your child that you care about him and are working together as a family to find a way forward.

Young adults are returning home at an increasing rate. But that doesn't mean they have to return to financial dependence. Helping your child manage her debt-either by paying it off yourself or showing her how to pay it down-will be one of the best life-skills you can give her.

Money Huddle Tip: At your next Money Huddle, read through our credit card guide, Got Plastic. You'll find all kinds of ideas on how to educate children about credit cards, debt, and financial responsibility.