Erica Sandberg is a prominent personal finance authority and author of “Expecting Money: The Essential Financial Plan for New and Growing Families.” She writes “Opening Credits,” a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.
Dear Opening Credits,
I co-signed on a Chase credit card for my son who is going to start his first year of college in a week. I filed for bankruptcy 10 years ago. I have learned my lesson about credit cards and don’t want him to ever go down the same path. My credit is now the best it has ever been, and I’m very proud of that fact. Because he is on my card, I don’t want him to get me into debt again. But he will be living in Virginia, and I am in New Jersey and won’t have any way of knowing what he’s up to. Any ideas on how I can sleep better at night? I have no debt except for my townhouse, and I want to keep it that way. All the best to you. — Kelly
Are you familiar with the “rule of sleep” for investments? It says you should never take on so much risk that you can’t drift off because you’re consumed with worry about losing your principal. It applies to credit as well. If you borrow more than you can psychologically handle, you’ll toss and turn all night.
I can see why you are worried. When you co-signed on the credit card account for your son, you took on a little more risk than you’re truly comfortable with taking. There is a certain amount of post-traumatic stress that some people have after they’ve been though the debt wringer. Being in the hole is depressing and awful, and bankruptcy is often a very emotional and difficult process. You never want to go there again — yet by giving your child the ability to make charges, you’ve just exposed yourself to that possibility.
Here’s how you can reduce your anxiety and keep your son on the straight financial road.
1. Establish charging rules. Don’t just hand over the card and let him do what he wants with it once he arrives on campus! Make sure he knows what it’s for. Maybe you only want him to purchase books and materials, and expect him to pay for the rest of his expenses with student loans or a job. Consider what you’ll do if he doesn’t follow through. Will you revoke the card for a few months? If you pay the balance in full because he can’t, will you make him repay you with added interest and fees? Whatever you decide, write the rules and consequences down and have him sign it. That will be a contract that you can refer to if needed.
2. Hold regular money and credit meetings. Set a half hour aside once a month to talk about how he’s doing financially. Don’t assume he’s doing something wrong or imply that he’s not capable or responsible. Just treat it like a friendly business meeting: Be positive and ask how he’s doing with his cash flow, expenses and charging. Give praise when due and advice when necessary and appropriate.
3. Check the statements. Since you are the person the credit card company will come to for payment if your son doesn’t uphold his end of the bargain, don’t take your eye off the “balance” ball. You can and should still review the statements to make sure he’s making the payments on time (assuming he’s the one who has account management duties) and that he hasn’t gone overboard. You don’t even have to wait for the statements. Chase, like many card companies today, lets you remotely and automatically monitor spending via email and phone alerts. Break out the signed contract if problems erupt.
With excellent credit use, he’ll eventually qualify for a card in his name only, at which point you can remove him from your account. Then you can go to bed confident that you gave your son the gift of credit independence — and drift off without fretting that he’s treating his frat house to a party on your dime.
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