Credit Card Danger: Don't Add Authorized Users

Adding a user to your credit card account - no matter how much you trust him or her - can be a giant financial risk. Parents with college-age kids are considering this right now, since new laws prohibit banks from issuing cards to minors without a job (unless they get a co-signer).

While becoming an authorized user offers easy access to a credit card and can help establish a credit history, for the account holder it can be risky business. Take this unfortunate question I recently received from a reader earlier this month:

"I made the mistake of putting my boyfriend on my credit card accounts. He has managed to rack up a little over $30k in debt under my name. Although he is making the minimum payments each month, the balances are not going down and the payments are extremely high for each card. What is the best way to resolve this issue?"

Ugh. This scenario is precisely why adding an authorized user to your credit card account can be a bad idea. While this reader's boyfriend racked up the debt, she is the only one legally liable for paying off that balance. That's the catch with having an authorized user on your account. At least if the boyfriend was a joint account holder, they'd both be on the hook.

One way to resolve an authorized user gone awry is to now make a separate agreement with one another - signed and sealed - that says the authorized user will pay the account holder X amount of money each month to resolve this debt. You'll want to make sure that X is above and beyond the monthly minimum.

Once that's on track, see if you can get your boyfriend off the account. And in the future, see if your bank or card company will allow account holders to set limits on how much authorized users can spend. American Express, for example, began allowing spending limits on authorized user cards last year. This is especially key for parents want to keep their kids on a limited budget in college.

More on MoneyWatch

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• 0% Financing: How It Can Damage Your Credit
• Best Credit Cards for Your Teenager
• 6 Ways to Never Pay an ATM Fee Again
• Should I Save or Pay Down Debt?
• Credit Cards: 5 Rules for New Users