How to Help If Your Parents Are in Debt

Anna Kuehl
Expert Contributor
Last Updated:
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Strategies to help parents manage their debtWhen you have parents in debt, offering help or advice can be a sensitive subject. It’s natural to want to support the parents who helped you get where you are today. However, offering financial assistance goes way beyond simply paying off your parents’ back tax debt, credit card debt, or other major obligations. Discover what to do if your parents are in financial trouble. Learn how to help your parents get out of debt without using your own money.

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Give Time Instead of Money

Upon realizing that your parents are facing insurmountable debt, your first instinct may be to give them as much money as you can afford to offer. After all, loaning to your parents often seems like the easiest way to alleviate the financial strain they’re experiencing. However, it’s important to realize that simply pouring money into the situation won’t necessarily fix the problem at hand. Remember that the root of your parents’ debt may very well be their spending and money management habits. In this case, giving your time can be substantially more valuable than offering money.

There are countless ways you can give your parents your time. If you’re relatively handy or if you don’t mind contributing a little elbow grease, you can offer to take care of a few of the household tasks that your parents would normally hire out. From completing repairs to cleaning the gutters to painting a few rooms, a little help can go a long way.

If you’d rather help them get a better picture of their spending, try helping the track expenses. You can also sit down with them to sort through bills and develop a system for organizing and paying them before their due date. No matter how you help, you’ll feel good about encouraging your parents to improve their habits, and you’ll know that the assistance you’re offering can provide help for years or decades to come.

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Set a Good Example

You might expect your parents to be role models and set a great example for how you should live your life. However, it’s important to remember that they’re only human, and their money management habits may need some work. If your parents have managed to accrue substantial tax or credit card debt over the years, it may be up to you to set a good example for the family.

Start by talking with your parents about the good money management habits you follow. If you’ve pledged to set aside a certain amount of money each month, discuss your savings goals with your parents and explain why having a financial cushion is so important to you. Once you’ve created an emergency fund for your family, discuss how you decided on an ideal amount for your fund and how you keep it separate from your spending money.

If you’ve started saving for retirement, explain how your savings plan works and what your goals are. Keep in mind that lecturing probably won’t help your parents change their habits, though. Work your habits into everyday conversations with your parents, and keep the focus on your own objectives instead of the changes you think they should make.

Talk About Budgets

For most people, creating a solid budget is a smart way to deal with debt and keep your finances under control. Bringing up budgets with your parents isn’t always easy, but if you start by setting a good example with your own effective budget, broaching the topic with your folks will be more straightforward. After all, creating a budget might seem like an impossible task if there’s never quite enough money to go around. If your parents see you using a budget successfully, however, they may be more inclined to develop one for themselves.

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When you first start talking about budgets with your parents, give them the chance to select the method that works best for them. You may prefer to use high-tech financial software or even a spreadsheet program, while they may be more likely to stick to a budget if they can use a notebook and a filing system for paper receipts.

After choosing a system, encourage your parents to begin the budget process by recording their recurring monthly expenses, such as a mortgage and car payments, as well as periodic expenses, such as new clothes. Next, help them calculate their total sources of income, which could include salaries, investments, and even Social Security payments.

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Then, work with them to balance out the two columns. If they have extra income to spare each month, this could go toward debt payments or an emergency fund. If your parents don’t have enough to cover their expenses and build an emergency fund that can sustain their needs for at least six months, help them identify ways to trim their expenses. Cutting back on unnecessary purchases can help a little, and negotiating a better debt repayment plan could help a lot.

Organize Online Banking and Bill Payment Accounts

No matter how many credit cards, bank accounts, and recurring bills your parents juggle, keeping track of everything can be challenging. If you already handle bill payments and account management online for your own finances, however, you know that tracking the information online makes everything just a little easier. With online banking, you can access the information you need around the clock and from virtually anywhere.

Talk with your parents about helping them set up their online banking and bill payment accounts. Then, get permission to access the accounts and monitor bills and available funds. By doing this, you’ll help make sure your parents don’t miss a due date, get a late fee, or overdraw their accounts. If your parents have numerous accounts to manage, consider consolidating the information in a single online program, such as Mint. That way, you’ll have a complete picture of your parents’ finances and spending habits all in one convenient place.

Remember that even after you’ve helped your parents shift their banking and bill payments online, you’ll still need to keep an eye out for the occasional bill to arrive in the mail. To make sure nothing slips through the cracks, talk with your parents about good practices for managing paper bills. They may want to keep the process simple by opening each bill upon arrival and placing it in a designated box or folder. They may prefer a more high-tech process that includes taking and uploading a picture of the bill or adding the amount due to a shared spreadsheet.

Encourage Long-Term Saving

If you’ve never faced insurmountable debt before, you might not realize how difficult it can be to look past the financial issues that are immediately in front of you, especially when you feel like you’re drowning in debt. While your parents may find it necessary to prioritize short-term debt management for a brief period of time, they’ll eventually find that it’s essential to include long-term savings in their budget. After all, your parents will need to save for their eventual retirement or for unexpected expenses, such as serious health issues.

While saving large amounts of money might seem impossible, your parents can slowly build up an impressive fund just by setting aside a little money each month. While setting up a savings account might be the simplest way to save, retirement accounts can have much greater payoffs. Encourage your parents to talk with their employers about retirement funds, such as 401 (k) plans, or employer match opportunities. These are the usually easiest ways to start saving for the long term, since they don’t require your parents to manage the funds actively.

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If your parents’ employers don’t offer savings plans or if they’re self-employed, they can still set up their own plans. With an individual retirement account (IRA), your parents can set aside money for retirement and benefit from the tax breaks while watching their nest egg grow. If your parents have relatively low incomes, they may even be eligible for Roth IRAs, which offer even more tax incentives.

As you talk with your parents about long-term savings, be sure to mention the dangers of drawing on their retirement funds too early. Nest eggs can be tempting, especially when your parents have substantial debts to pay off, but withdrawing money too soon can be very expensive. For instance, your parents could have to pay up to a 10 percent fee on early withdrawals, and they may have to pay standard income tax rates on the funds, too.

Discuss Debt Relief Plans

As you’re discussing money management with your parents, keep in mind that in some cases, tackling insurmountable debt requires more than good financial practices and careful budgeting. After you’ve taken the time to talk with your parents about creating a budget and saving for the long term, you may need to help your parents look into tax or credit card debt relief. If you find that your parents are getting further behind on their savings plans or that they’re living beyond their means, it’s time to talk about debt relief.

When you first talk with your parents about debt relief, it’s important to emphasize that none of the available methods will eliminate debt right away. Instead, they give your parents options to consolidate their debts, negotiate smaller payments, or request longer periods of time to pay.

1) Credit Counseling:

One of the best places to start pursuing debt relief is enrolling in a credit counseling program. If your parents take advantage of a credit counseling program, they can anticipate letting a professional review their budget, evaluate their outstanding debts, and make debt relief recommendations based on a comprehensive understanding of their financial situation. Your parents should expect an experienced credit counselor to recommend a long-term debt relief plan that may take several years to complete.

2) Debt Management:

A debt management plan may also be a viable option for your parents, as this is a solution that credit counselors often recommend. With a debt management plan, your parents will typically work with a counselor to lower interest rates and penalties to lower their overall debt. Though this type of program can boost your parents’ credit score, it can take up to five years to complete.

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3) Debt Consolidation:

In some cases, your parents may also want to consider debt consolidation. This solution requires your parents to take out a debt consolidation loan to cover all of their outstanding debts and then make a single monthly payment to pay back the loan. They’ll need to seek out a reputable debt consolidation company to take advantage of this type of solution.

4) Debt Settlement:

These programs are offered by for-profit companies, and involve the company negotiating with your creditors to allow you to pay less than what you owe as part of a “settlement” to resolve your debt. Debt settlement companies usually ask that you transfer a payment amount every month into an escrow-like account to accumulate enough savings to pay off a settlement that is reached eventually.

With so many strategies to draw upon, now you’re ready to take the first step to help parents dig out of debt. Whether your parents need help with tax, credit card, or student loan debt relief, they can find more information on Solvable.

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Anna Kuehl
Expert Contributor
Last Updated: