Teaching adult children fiscal responsibility
Co-signing is OK, but not when you get stuck with the payments
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Dear To Her Credit,
I am having trouble with my son and can really use your advice.
Trevor is 26 years old and lives with me. His credit is shot because he had a substance abuse problem when he was younger and didn't pay his bills. To help him get back on his feet, I recently co-signed on a new truck for him. He's in construction, so he needs it to go to the job sites.The problem is that he hasn't made a payment in a couple of months. I just found out, and I don't know what to do now. Do I bail him out? He promises that work will pick up and he'll be getting more hours and can pay me back. -- Maria
You really don't have a choice at this point. You co-signed on the loan, so you must make the payments when he doesn't or suffer the consequences. The bank lent the money on the strength of your signature and ability to pay.
Over the long term, however, you have some decisions to make. You want to help Trevor, but the hard part is figuring out how to help him without letting him remain financially dependent on you.
He needed the truck to go to work, so he must be making something. Since he lives with you, how many bills can he have? Surely he could have made his truck payments. It's been too easy for him to slip up and let you do it.
Co-signing, when done successfully, is like a set of financial training wheels. It should be used only as a temporary measure until the young person is a little less wobbly. Training wheels left on a bicycle too long encourage excessive leaning -- not independence. Skipping payments and expecting you to make them when you find out is definitely leaning on those training wheels.
If we could go back in time, perhaps you could have chosen another way to help Trevor. It's true that a person who can't get to work without a vehicle may need a hand. Here are some prudent ways other people have been able to help kids (or anyone) get a fresh start:
- Lend him a second family car. He doesn't need a truck in his own name to get to work (and he doesn't need a status vehicle until he's earned it).
- Buy him a clunker. For the cost of three or four new truck payments, you can buy an older car for him. It can be a gift or he can pay you back.
- If you feel you must buy him a newer pickup (not a new one), keep it in your name. At least that way, if he quits making payments, you have the truck. By co-signing, you get all the responsibilities and none of the benefits. What a deal.
I suggest that to get his life back on track, your son needs more bills, not fewer bills. You can talk all you want to him about how much things cost, or how he needs to make a living, but whether a kid is 18 or 28, he won't understand that until he has his own bills to pay. Then, suddenly, it will make sense to him. Trevor needs to be responsible for his own car payments, car insurance, gas, food, health insurance, rent and all the other bills that you and everyone else pays every month. He needs to pay them to someone besides you; it's too easy to not pay you, and owing you money only makes you the bad guy. In other words, for Trevor's sake, he needs to move out and make it on his own!
Give Trevor a deadline for when he needs to be on his own and let him know you're serious. You'll have to take into consideration the economy in your area and other factors in deciding when to make that deadline and how to enforce it. But it's human nature to put off taking responsibility for our own lives if we can get away with it.
Back to the truck: I'd get out of the co-signed loan as soon as possible. Either he starts paying for it right now and never misses another payment or the truck gets sold. There's no need to threaten or to show any anger. It's just a practical matter. If construction work is lagging right now, he can't afford it and neither can you.
Take the training wheels off your son's truck as soon as possible. You'll both be happier for it.
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