Different kinds and degrees of debt demand different kinds of intervention. But let’s begin with the general question: Is it wise to bail our adult children out of trouble they got themselves into? Or should one let them bear the consequences, so they learn?

Unless this is a long-term chronic problem, grab your bailing bucket. Absolutely. The lessons taught by overwhelming debt aren’t taught any better by letting a bad crisis become hopeless. Debt isn’t like water standing three feet deep in a basement, which has ruined the books and games stored there but will eventually flow away again and leave the owner with some cleaning up to do. It’s a rising flood, threatening to carry off the whole house—literally. Left alone, it doesn’t go away, it just gets deeper.

So, if your own financial resources are ample enough, of course you’re going to help your child onto dry land. The question is, what kind of help? What’s the Deal?

First of all, will you help with a gift (unconditional), a grant (a conditional gift) or a loan? Which of those is more constructive depends on your assessment of the circumstances.

Will these funds buy them out of trouble they should have known better than to have gotten into? In other words, are you reducing or deferring the consequences of irresponsible behavior? If so, a loan might be more helpful in the long run, as it prevents catastrophe while still leaving the ultimate responsibility with your child or their partner.

Another situation where we’d recommend a loan rather than gift is for proposed expenditures you’re not sure are necessary or wise at this point. In contrast, major gifts are for anything parents want their kids to have at this point in life, rather than wait until they can afford it.

For example, Susan can’t make the payments on a new SUV her father thinks she had no business buying in the first place. He will ease the burden of that GMAC loan with a lower monthly payment DOD (Dear Old Dad) loan. But he refuses to enable her delusions of affluence by turning the car into a gift.

Compare that with a gift example: Kent mentions that he missed his health insurance payment, among other problems. Unpaid premiums aren’t debt; the policy will simply lapse immediately if his parents don’t step in. Fortunately, their doing so isn’t “enabling” in the way taking all the pressure off Susan would be. Insurance is something the parents want their son to have, partly for their own financial protection.

Whenever your Deal includes a loan of significant money—the down payment on a home, for example—write and sign a formal note specifying the terms: beginning date, payment expectations, interest rate if any, and what happens if one of you dies before it’s been paid off. This latter, though unpleasant to consider, is important if you have more than one child. Spell out the terms of the $50,000 your thirty-year-old daughter intends to repaying when she sells her condo. You can simply tuck the note with your wills, as a precaution against sibling misunderstanding and conflict in the unlikely event that something happens to you in the near future.

“What have you learned?”

There are silver linings on the clouds hanging over your “ass deep in debt” son or daughter: namely, the wonderful opportunities they now have for learning, without shame, how this happened to them. After all, if they made some mistakes, millions of others—no, hundreds of millions—have made the same mistakes. Consumer debt in the United States alone now tops two trillion dollars.

Now that they’re in this process of working themselves out of debt, your coaching and that of others should make them more sophisticated about commercial finance, as well as household money management, than their peers who haven’t been in this situation. This is a good thing, as each small piece of learning along the way contributes to self-esteem (especially when you acknowledge their learning).

I heard a radio advisor tell a young woman not to start paying off her $4,000 credit card balance until she had $1,000 in savings. It’s not that simple at all! She would lose at least 15 percent of her money, every year she kept it in a savings account instead of applying it to her debt.

What the radio expert may have meant was that she should keep some savings in case of emergency: in case she lost her job, for example, and couldn’t pay the rent. But in that case, she could fall back on the credit card; why pay the high price now, if it may never be necessary? If she were your daughter, perhaps you would be her safety net; in which case, you’d advise her to pay every dollar she can spare, to get out of that high-interest loan. In a genuine emergency, she could turn to you, but right now the critical situation she should be worried about is that credit card balance that’s costing her $600 to $1,000 a year.

As we’ve explained, the so-called credit history your youth acquires by making minimum payments is not worth one dollar, compared to the long-term risk upon her of the compounding, usurious debt and penalties.

If your son or daughter is having trouble making minimum payments on a card, then receives a bonus check for some reason, they shouldn’t apply every dollar of it to the card balance, because (unless they can pay off the whole balance) they’ll still owe a minimum payment next month. Nonetheless, I would apply the lion’s share of any extra money they get their hands on to reduce that credit card debt.

The bottom line

In the course of this book, we discussed many ways you can help young adults fight their way back from serious debt:

• When it doesn’t conflict with the goal of teaching them to meet their obligations, you can bail them out of part or all of their debt with a gift.
• You can lend them money at a significantly lower rate of interest, or no interest, and with less draconian repayment terms.
• Whether an outright grant or a loan, your Deal can specify that they won’t borrow any more, from a credit card or any other source.
• You can help them slash their spending to the bone. (Remember that if you think they need help with banking and bill paying, your Deal can insist they involve you in that.)
• Your Deal can insist that they take on additional work, more shifts, or change to a lucrative job.
• You can make sure they know the difference between “debt consolidator” and a trustworthy, not-for-profit credit counselor.
• You can encourage them to be realistic about how long a process this may be.
• You can help them crystallize the lessons their dilemma taught them.
• You can make the whole debt recovery process tantamount to a Business 101 course.
• You can celebrate every positive step, distinguishing your child from the millions who only let their problems get worse through denial and inaction.