Question: My adult child has only been working a few years and ran up a credit card bill at a favorite department store. The interest rate is outrageous. How can I help him transfer the balance to another card with lower interest?
Answer: Why would you want to do that?
I presume your answer involves high interest rates being wasteful, etc. OK, we can agree on that.
But that is not your adult child’s most pressing problem. In fact, I fear that if you help your child with a credit card balance transfer, you run the risk of making the problem bigger.
In my experience, balance transfer often equals responsibility transfer.
Rarely do I see such moves help the problem – in fact, it may merely delay both the admission of the real problem and the administration of the inescapable solution.
The problem is not a high interest rate. The problem is a low responsibility rate.
Your adult child has run up a big credit card bill. Ninety-nine percent of the time that is the result of irresponsible spending. So now comes the time when he has to pay the price…with interest.
Paying off a large credit card bill (one made largely through irresponsibility) can be a valuable, if expensive, lesson for a young adult. Beware what actions you take as a parent, lest the lesson taught is that if I run to Mom and Dad, they’ll make it all right.
Some balance transfers can make sense mathematically. Others are just outright rip offs. Watch for hidden fees, high transfer fees and temporary “introductory” periods, after which interest rates shoot back up to 20% or more.
But it isn’t the hidden fees that are the biggest problem. It’s the human nature. You can change the bank that issues the card, but have you changed the issues of the card holder? If your child doesn’t buy into the fact that his spending decisions have consequences (good or bad), this credit card problem won’t go away anytime soon.
And the best method for teaching him self-control is by letting him experience the consequences of his behavior to date. Let him pay off the card by himself.
Suppose I run up a $2,000 balance on my credit card, which charges me 20%. The card company tells me that I can just keep paying the minimum, which would likely be about $50 per month. But at that rate, it could take over 5 years to pay off…if I stop adding to the card balance now.
But if I’ll just double the payment to $100 per month, I can get the card paid off in just two years. And if I do a balance transfer to a lower interest rate? At best it might shave two or three months off the payback time.
It isn’t that I am against all balance transfer deals. What I am against is using such deals as a focal point for delaying the real issue – behavior modification.
My advice to you, parent to parent: if your child asks for your opinion, give them a copy of this column with a note, “I saved this in case you ever asked.”
And if he doesn’t ask your opinion? Keep it to yourself. It’s your adult child’s issue.
Let him own it, solve it and learn it for himself.
Byron R. Moore, CFP® is managing director / planning group of Argent Advisors, Inc. Email him at firstname.lastname@example.org. Write to him at 500 East Reynolds Drive, Ruston, LA 71270 or call him at (318) 251-5800. The opinions of any single advisor do not necessarily reflect the opinions of Argent Advisors, Inc.No forecasts can be guaranteed. Argent Advisors, Inc. does not offer tax, insurance or legal advice. The information contained in this column should not be construed as a substitute for personalized investment, tax, insurance or legal advice.