When facing credit card debt and trying their hand at managing money, some consumers may turn to their parents to find some debt help.
However, a recent story from the Chicago Tribune notes that a number of things should be considered before children start accepting money from their parents. First of all, parents need to make sure they have the funds to be able to support their children in that situation, especially considering that their kids could default on a bank-originated loan, which could lower their credit score.
Children need to consider their own positions as well and whether the money they are getting from their parents is a gift or a loan that will have to be repaid. Furthermore, any siblings should be made aware of the situation so as not to create acrimony between family members.
“Certainly, tension can develop if the siblings view the loan as helping a child who did not or would not help himself,” Bonnie Hughes, a financial planner, told the Tribune.
Parents and children should also consider putting together a contract to cement the deal. Recent stories have indicated that person-to-person contract and loan websites have become popular with consumers, and allow them to get loans when they might not be able to through a bank.