MONEY Kids and Money

4 Ways to Lighten Your Kid’s Debt Load

Converse sneaker ball and chain
The typical 25- to 29-year-old has more than $35,000 in debts. Michael Crichton + Leigh MacMill&

Many young adults are struggling to keep up with student loans, credit-card balances, and car payments. Here's how you can help.

No Mom or Dad wants their adult children to view them as a walking ATM. Still, when they’re struggling financially, what are you going to do?

One thing’s for sure: A lot of them do need help. The typical 25- to 29-year-old owes more than $35,000, according to a recent study from PNC Financial Services—and only about 40% of them say their debts include student loans. No wonder that between credit card balances, car payments, and other bills, 78% of the millennials with debt reported in a new Ameriprise survey that they feel woefully overextended.

If your child is one of them, of course you want to help. These steps will let you do that—without undermining his autonomy or risking your own financial security.

Offer Advice, Not Cash

Resist the impulse to provide a handout, at least initially. After all, you probably need the money for retirement. Plus, you’ll lose a teachable moment. “Bailing your kids out doesn’t help them learn fiscal responsibility,” says financial adviser Deena Katz, an associate professor of personal financial planning at Texas Tech University.

Instead, she suggests, offer to review your child’s expenses and identify ways to free up cash to help with debt payments. Junior isn’t eager to share details about his money with Mom and Dad? Encourage him to use sites such as youneedabudget.com to create a workable plan. Or offer to pay for a year of budgeting help from a professional adviser at a financial planning site such as LearnVest.com ($89 setup, $19.99 a month).

Tackle the Plastic

Twentysomethings often pay lofty credit card rates of 22% or higher owing to their meager credit history and low credit scores (average for millennials: 628). Suggest your child call her issuer and ask for a lower rate, pointing out—if true—her history of on-time payments. “If the provider doesn’t budge, use Bankrate.com or CreditCards.com to shop for a lower-rate card to transfer the balance,” says Beth Kobliner, author of Get a Financial Life: Personal Finance in Your Twenties and Thirties.

Another option, says Gerri Detweiler, director of consumer education for credit.com: Take out a lower-rate loan to pay off the balance. At peer-to-peer lending sites Prosper.com or Lendingclub.com, a millennial might nab a 12.5% rate from investors.

Wrestle Down School Loans

Also help your child explore ways to lower the monthly bill for college debt, such as income-based repayment plans for federal loans. Instead of the standard 10-year payback term, monthly payments under this program are capped at 10% or 15% of the borrower’s discretionary income, depending on when they took out the loans.

The downside is that your kid may rack up more interest over a longer payback period. Any balance remaining will be forgiven after 20 or 25 years of consecutive payments, though taxes will be due on the amount. Have a kid who’s a teacher, works for Uncle Sam, or has another public-service job? He may qualify for loan forgiveness after 10 years with no taxes due. (Get details from the Department of Education here.)

For private student debt, your child may be able to get a lower-rate refi or consolidation loan through another lender or credit union, says Detweiler. Check out student loan comparison shopping sites such as Simpletuition.com and Overturecorp.com for sample offers.

Provide Temporary Refuge

If your child is in too deep for these strategies to work, go bigger. Maybe you suggest your child move home for a bit and direct “rent” toward loan repayment. Or, if you can really afford it, you might pay off her credit card debt—but be clear this is a one-time-only gesture.

Just remember: “Financial help between parents and adult kids is fraught with emotion for both of you,” says Olivia Mellan, a Washington, D.C., therapist who specializes in money issues. Helping your adult children doesn’t give you permission to meddle in their lives, says Mellan, and don’t be surprised if they don’t act grateful. In other words, nothing’s really changed from when they actually were kids.

 

More on Financial Independence

7 Ways to Get Your Kid Out of Your Basement

Is Living with Mom and Dad Starting to Cramp Your Style? Take These Steps to Independence

Taking Five Years to Earn a B.A. is Common—And Costly. Here’s How To Get Out in Four

MONEY

Single Mom Opens Women’s Bike Shop

Robin Bylenga’s working life hasn’t always been a smooth ride.

Nine years ago, the then newly divorced mother of three young kids reentered the workforce and began honing a career in sales through a series of positions — the most recent of which involved peddling L’Oréal hair products to beauty salons. While Bylenga liked the paycheck, the travel and long hours required took their toll.

Looking to unwind, she climbed on a bike for the first time in years. Something clicked. “I rode and rode and rode,” Bylenga recalls.

When she was laid off from L’Oréal in 2009 after her division was sold, she decided to take an interim job at a local cycling store.

Within no time, she says, “women began to come in just to talk to me, and to ask questions like what trails were good with kids and what bra I wore when I rode.”

The experience gave her the idea to create a bike-shopping experience for women that, as she says, wasn’t all about how fast you rode or what scars you’d acquired. She imagined a boutique featuring feminine décor, stylish cycling apparel, and positive messages.

In December 2010, after a year of researching the market, Bylenga opened that store, called Pedal Chic, in downtown Greenville, S.C.

To drive traffic to the shop, she has hosted weekly group rides — which are BYOBB, “bring your own beverage and bike” — and offered maintenance classes called Women With Wrenches.

Last year, revenue hit $250,000. Based on sales so far, Bylenga expects to take in $500,000 in 2012 and reap her first profit.

She’s also now paying herself $1,000 a month. While she could take more, she’d rather pump cash into growing Pedal Chic’s e-commerce business.

Her next big goal is to expand, either by franchising or opening boutiques within larger retailers.

For now, though, she’s happy with her return on investment. “Every time I help a customer find women to connect with through cycling,” she says, “it’s a payday.”

HOW SHE DID IT

Profit she made on her trial run: 200%

Before deciding to open a store, Bylenga wanted to make sure she could make a go of it. So she invested $500 in a small inventory of women’s bike apparel to sell at a local bike race. After parlaying that into $1,500 in sales, she was convinced.

Amount she needed to start Pedal Chic: $50,000
The majority came from a five-year, 3.5% startup loan from Michelin Development. She also personally invested about $10,000. Together, the money allowed her to sign a lease, buy inventory, and hire five employees.

When Bylenga expects to match her previous pay of $60,000: 2014

In tandem with the child support she receives from her ex, her salary — albeit small — allows her to scrape by while reinvesting in the business. Because she’s been in belt-tightening mode, she hasn’t yet added to her savings but notes, “Pedal Chic is my retirement fund.”

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