Is it wise to bail a son or daughter, or anyone we care about, 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 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, debt 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 family member onto dry land. The question is, what kind of help? What’s the Deal?

The first question is whether to 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. Different kinds and degrees of debt demand different kinds of intervention.

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 the individual or couple who ran up the debt.

Another situation where we’d recommend a loan rather than gift is for proposed expenditures you don’t think are necessary or wise at this point. For example, Susan can’t make the payments on a new SUV her stepfather thinks she had no business buying in the first place. He will ease the burden of that GMAC loan by paying it off and allowing Susan to make low-interest monthly payments to him. But he refuses to enable her delusions of affluence by turning the car into a gift.

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. Your self-employed son can’t pay his health insurance premiums? Taking that on for him isn’t “enabling” in the way taking all the pressure off Susan might be. Assuming you want your son covered (for your own protection as well as his, since you’d be the one ponying up in an emergency), and assuming you can afford it, then a gift makes more sense than a loan.

If you make a loan of significant dollars—, for example, the $50,000 your thirty-year-old daughter intends to repay when she and her ex sell rheir condo—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 prospective heir. 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.

The bottom line

The book Trust Me: Helping Our Young Adults Financially discusses 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 without the draconian repayment terms of a credit card or store loan.

§ Whether an outright grant or a loan, your Deal (written and signed!) can specify that they won’t borrow any more, from a credit card or any other source. Use a debit card!

§ You can help them slash their spending to the bone. And if you think they need help with banking and bill paying, your Deal can insist they let you supervise that while coaching them.

§ You can allow them to move in with you—but make it clear: what’s the Deal?

§ You can celebrate every positive step, distinguishing this maturing child or sibling of yours from the millions who only let their problems get worse through denial and inaction.