Mental illness raises many challenges when it comes to credit.
The sad truth about life is that many things are out of our control, but still impact our life. For those struggling with mental illness that isn’t severe enough to keep them out of society, and those who care about them, the struggle can be how much influence you can or should have over that person’s credit usage.
Depending on the person’s affliction, the use of credit can create or magnify their issues. How much should you get involved with this person’s credit use?
Minimize your financial risk
Here’s the tough love first – do not ever place yourself in a position of significant liability. Do not cosign any credit application for that individual. Do not tie their payments to any of your bank accounts. Do not promise anyone, especially a debt collector, that you will cover your loved ones debts.
In many cases, mentally ill people need to get by on their own anyway. More to the point, you must not put yourself in a position where you can be financially at risk, which will only hamper your ability to help that person.
Some options to consider
Next, let’s assume you are on good terms with this individual. If you are in the position of having any kind of say over their care, you should first consult with their mental health professional about exactly how to help them be responsible. Some of the ideas to run past them include the following:
Make them an authorized user. The best approach is to set up a credit card with you as primary cardholder, but with your loved one as an authorized user. This permits that person to use the card, but your internal agreement will be that they are responsible for payment. However, per the advice above, put a hard credit limit on the card, so your liability is limited.
Being an authorized user is totally different than being a cosigner. In the latter case, the cosigner shares liability both jointly and severally with the actual cardholder. In other words, you are completely liable for paying the card off – even if the cardholder charges up a storm and runs off without paying a dime, you are liable for the entire balance. Even worse, your credit report is tied to whatever transpires with that card. If it’s paid on time, then your score goes up.
Contact debtors. It’s best to call the credit card companies and let them know that they have a mental illness issue. Ask the credit card firm to place additional security on the card, such as a daily limit on charges, a limit size on single charges, or a flag that shuts down the card if there are too many charges in too short a time. These might be added for your own card for which your loved one is an authorized user, or for that individual’s own card.
In any event, this security flag may require that they get you to OK a given purchase or to exceed a limit.
Get a secured card. A secured card requires your loved one to deposit a certain amount of money with the credit card company that it will use to pay off anything they charge. Again, stick to a low limit.
Counseling for all. It’s difficult enough living with mental illness. Adding credit to the mix can make things worse. Don’t be afraid to see a counselor yourself, to keep everything in perspective, and to check in on your own feelings as you both move through the process.