Sunday, December 20, 2009

Adult son racks up $20,000 on mom's cards

What's a mom to do? Sell his stuff... fast

By Sally Herigstad

To Her Credit
To Her Credit, Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006).

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Question for the expert

Dear To Her Credit,
When my son (49) had bad, bad credit, I authorized him to use two accounts of mine -- a Visa and a business American Express card. I had the AmEx account because I was going to start a cookie business and the rates seemed good. I never used or signed either card. I told him he could use the cards for a couple of months, and I assumed he wouldn't spend more than a few hundred dollars.

His signature is on all of those bills. I didn't know he was still using them, in fact I thought I had closed the American Express. Now I find out that he called them and had all the bills sent to him. He has run up balances of over $20,000.

What can I do other than seeking legal help and ruining his life? I cannot pay those bills nor do I want to hurt my credit score as I pay the minimum or more each month, but the companies have been calling me.

I know I should not have been so generous, but he is my only son. -- Lenore

Answer for the expert

Dear Lenore,
You have a worse problem than a $20,000 debt right now. You have a son who, way past the age when he should know better, is treating you disrespectfully.

I know you had the best of intentions. We parents all want to help our kids and to have good relationships with them. In the short term, it seemed like handing over your cards to him would accomplish both of those things. In the long term, it has accomplished neither. Giving a card to someone who cannot handle money is like opening a tab for an alcoholic. And unpaid debts between parents and children only cause more stress in relationships.

If you authorized him to use the cards, he didn't break any laws doing so. I don't know if he had the statements sent to him because he intended to make the payments himself or to hide them from you. Either way, sorry to say, the bills are in your name.

Bankruptcy is not a good option. That amount of money is not worth going bankrupt over as it would cost you another $5,000 in fees by the time it's over, plus repercussions to your finances for the foreseeable future. It's not your answer.

People ask a lot about negotiating debt settlements with the credit card companies. However, despite what you've heard in some advertisements, nobody can snap their fingers and cut your debt in half or make it go away. Banks typically settle with debtors only in extreme hardship cases, such as catastrophic illness or unemployment. Loaning out your credit cards to your son probably won't qualify.

The first thing you should do is close every account your son has access to. Check your credit report and make sure he hasn't bought anything else in your name.

Next, level with your son and tell him you cannot afford these bills. Kids often assume their parents have unlimited money (although a 49-year-old kid should know better). Tell him he is going to have to pay you back and give him suggestions on how he can do so.

He must have bought things with the $20,000. Is any of it returnable? People who go on spending sprees often have clothes with the tags still on or electronics still in the box, for instance. They can go back to the store. Used items can be sold on eBay or Craigslist. If he's enjoying the latest sound systems and video games while you get stuck with the bills, the party's over. I don't care if it's installed in his car -- tell him he has to pay for it or sell it.

You can even offer to take items of value in lieu of cash. Does he have a motorcycle, a fishing boat or guns? He may laugh when you tell him to hand over his toys, but this level of debt is no joke. You are perfectly capable of turning it into cash to start paying down this debt. If he can't part with his stuff, maybe he will suddenly find cash.

Don't let him reduce what he owes you by claiming inflated values of what he owns. People tend to overestimate what their things are worth -- often by two or three times. Check out the wholesale values yourself, or agree to only reduce the amount he owes you by the cash you get out of them.

I'm assuming that if your son is 49 years old, you must be retired. Earning enough money to pay off $20,000 would be daunting. Your son, however, is in his prime earning years. He spent the money -- he can pay it off.

If he's already working full-time, your son might have to take an additional part-time job to pay off the debt. If there are no jobs where he lives, he may have to start a service business of his own that doesn't require an investment. Depending on his skills, he can do odd jobs such as driveway resurfacing, roof cleaning, after-school tutoring or Web site design. Essential services are the best bet because even in a slow economy, people still pay for them.

The bottom line is this: Your son owes you $20,000 and he has to pay it back. It's the best thing for him, for you and for your relationship with him.