Many of us are struggling to keep afloat in this economy and nobody wants to see loved ones flounder under overwhelming debt.

So what should you do if your grown children come to you asking for help with their debt?

Below are some steps to take before you fork the money over.

Consider These Points:

Step 1: Stand back and consider everything.

Before you decide whether or not to help your child out of a financial squeeze, consider all relevant factors.

• Is this just one more in a series of demands for money? If so, odds are neither you nor your child will benefit from a financial bailout – you may want to let your kid learn the hard way.
• Is this a true emergency like unexpected job loss, illness or divorce? If so, offering some help may be in everyone’s best interest. Millions of Americans end up filing bankruptcy because of such unexpected expenses. If you can offer a hand, your child may be able to avoid bankruptcy.
• Do you have a personal stake in your child’s finances? That is, did you cosign any of his or her loans? If so, your credit could be damaged if your child fails to make payments.

Step 2: Initiate or participate in useful research.

Whether or not you decide to help your child financially, make sure you both know what options are available, such as:

• Student loan deferral and forbearance: The government recently introduced two new programs to help recent graduates deal with student loans (info available here http://ibrinfo.org/). You can help your child determine whether he qualifies for such programs.
• Credit counseling: Your child may be able to handle his or her debt after consulting with an accredited counseling firm. Find information about services and firms in your area here: http://www.nfcc.org/.

Step 3: Weigh the options.

Once you know what you’re facing debt-wise and what options are available to you and your child, consider what you can reasonably do to help.

• Non-financial assistance: Maybe your finances don’t permit you to offer your child money. But could you invite him to live with you rent-free? Could you carpool to work or otherwise help him cut expenses? Creative thinking is essential when money is tight all around.
• Money gifts versus loans: If you decide that offering your child money will best serve you both, make sure you decide at the outset whether you’re giving her this money (you can give up to $12,000 tax-free per year) or lending it. If you opt to lend, make sure you put everything in writing or use a peer-to-peer lending site that specializes in formalizing loans between family members.

Step 4: Know when it’s too late.

If your child is being pursued by bill collectors, his financial problems are probably too deeply set to benefit from a handout. Help your child learn about filing bankruptcy if necessary, and encourage him to learn from this experience.

Steer Your Child Toward Good Financial Health

Make sure your child knows how important a healthy credit background is for American adults.

Knowing how essential strong credit is to succeed in finance may prompt your child to work harder at eliminating debt. Point him or her to www.annualcreditreport.com for free credit reports and pages on financial literacy to boost general knowledge.