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New Law Makes Parents Liable for Kids' Debts

  • Mary Hunt Debt-Proof Living
  • 2009 8 Aug
  • COMMENTS
New Law Makes Parents Liable for Kids' Debts


Parents of semi-adult children, listen up. Under new laws aimed at protecting college students from debt, you could get stuck with your kids' credit card bills.

By "kids," I mean your offspring who have reached the age of majority, which allows them to serve in the military, to vote and to sign for student loans, but have not yet turned 21.

The Credit CARD Act of 2009 forbids credit card companies to hand out applications to any college student for the asking. The law also prevents the popular practice of giving free gifts to college students who sign up for credit cards. Under the new law, to get a credit card, students either must prove they have an independent source of income to repay their debt, or have a parent cosign.

Knowing me the way that you do, you may be surprised to learn that I am not jumping for joy over this provision in the CARD Act. In fact, I am somewhat ambivalent. On the one hand, I abhor the rampant handing out of credit to unemployed young people with the intent of hooking them into revolving credit card balances for life. On the other hand, I find it sad that it took the government to fill a void created by the lack of effective parenting and basic personal finance education.

Be that as it may, what's done is done. The CARD Act of 2009 becomes effective in early 2010, at which time you may find yourself as a cosigner, agreeing to be fully responsible for all the debt incurred. All of it. Don't forget that any late payments will be reported to your credit file.

May I make a recommendation? Do not cosign. One good thing about this new law is that it gives parents power. I know that many of you are reading this wishing you'd had that kind of power in years past, when your student was signing up for free pizza, t-shirts and flashlights by filling out a credit card application. There's nothing quite so pathetic as a newly minted graduate who comes out of school carrying a load of student and credit card debt.

What's your alternative as a parent? Teach your kids the ins and outs of living a cash lifestyle. Get out the envelopes to teach the simplest of all budgeting systems. Introduce the concept of money orders when the requirement arises to send money through the mail.

Don't get suckered into cosigning in an effort to help your child build credit. Students don't need big credit scores to get a job or move into a dorm. What they need is a clean credit file that shows an absence of irresponsibility.

There will be plenty of time in the future for your Johnny or Suzi to build credit, when they're over 21.

If you have questions or comments about this new credit card law and its implications, please join the conversation at my blog, Money Rules, Debt Stinks!

August 24, 2009

Copyright © 2009 Mary Hunt. All rights reserved. Permission to reprint required.

Check out Mary's recently released revised and expanded edition of The Financially Confident Woman (DPL Press, 2008).

Debt-Proof Living was founded in 1992 by Mary Hunt. What began as a newsletter to encourage and empower people to break free from the bondage of consumer debt has grown into a huge community of ordinary people who have achieved remarkable success in their quest to effectively manage their money and stay out of debt. Today, "Debt-Proof Living" is read by close to 100,000 cheapskates.  Click here to subscribe. Also, you can receive Mary's free daily e-mail "Everyday Cheapskate" by signing up at EverydayCheapskate.com