The secrets to handling credit and debt
15 August 2008
When they are away for the for the first time, it’s probably not unreasonable to expect them to go off the rails a touch.
It’s all a bit of a juggling act at first. But by the end of their first year away from home your young adult should be showing signs of becoming a first class money manager.
Even if they constantly exceed their impossibly low budget they should have learned how to keep their over spending within measurable limits.
The secret of debt management is making a plan and sticking to it. Here are some tips on handling debts and ways you can help them cut their use of debt and credit cards altogether: The best tip of all is never getting into debt in the first place.
Budgeting
Get them to look closely at their debts and their outgoings. They may not realise just how much they really owe and what they spend their money on. They can't stop spending altogether so help them draw up a budget to monitor their outgoings and prevent debts mounting up. Get them to write down their monthly expenditure and stick to it.
Give outgoings a priority - rent first, then their bills. Then see what's left over
Shopping around for a good rate
If they have to use credit they need to know that the cost of credit varies widely. And, very often, it’s only inexperience that leads people into bad habits.
Insist your kids find out what interest rates they're paying on their loans, overdrafts, store and credit cards. Encourage them above all not to take credit at all and if they do, to pay off the most expensive first and then, importantly, close the account. Remember to explain that they need to keep up at least the minimum repayments and ideally pay it off.
It sounds obvious but make sure they don't take on more debt or credit than they can afford and if they have savings it’s better to use those than take on debt
Don't ignore it
They can’t afford to ignore a debt problem. Their credit rating can be checked to see if they have a poor history. This will affect them in the future when applying for a mortgage. Missing repayments can seriously damage their ability to get credit in the future.
Act fast
If you think they may have a debt problem help them to contact their creditors to negotiate or lengthen the term of their debts. Creditors will usually be receptive as an escalation of the problem is in no-one's interest. Check whether their lender is a subscriber to the Banking Code. Lenders who adhere to this voluntary code commit to considering cases of financial difficulties 'sympathetically and positively'.
