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Co-Signing For A Loan: Never A Good Idea Unless You Like Paying For Other People’s Stuff

One thing that always makes me cringe is when I hear about someone who has been asked to co-sign on a loan for a friend or family member.

I cringe because I know just how often those situations can turn bad, and how the co-signer can often be left holding the bag.

Usually there's a reason why the borrower is being asked to get someone to co-sign for them. Because they've a risky loan for the bank to make.

You Are Liable For A Cosigned Loan

The problem with co-signed loans is that far too often people don't know what they're signing up for. They think they're just signing on the dotted line to vouch for their friend or family member, when in fact they're actually becoming 100% liable for the debt.

co-signing is a bad idea

Some things you should know about cosigning a loan, from the FTC:

If you co-sign and the borrower misses a payment, the lender can collect from you immediately.
You are being asked to guarantee someone else's debt when you co-sign a loan.
If you are considering co-signing, be sure you can afford to pay the loan.
Your liability for the loan may keep you from getting other credit you may want.
Before you pledge property, such as a car, to secure the loan, make sure you understand the consequences. If the borrower defaults, you could lose your property.

Reasons Why Co-Signing Is A Bad Idea

There are a lot of good reasons that co-signing a loan isn't a good idea. Among them:

The person you're signing for IS a credit risk: If the person had good credit and wasn't considered at risk for default, they wouldn't need you to co-sign for them. Before you co-sign ask yourself if you would just directly lend this person money – because essentially you may be doing just that.
You are putting your own money on the line: When you co-sign your own money and property are on the line, but you aren't able to affect whether the other person pays their loan or not. In the end you may end up paying for the loan yourself. In fact, of loans that default, up to 75% of the co-signers may end up paying for the loan!
When you co-sign it changes and risks the relationship: When you co-sign for a loan, it ends up changing the relationship to a point where the relationship is risked if the person ends up defaulting. Why put yourself in this position and risk your relationships?

Want some wisdom from a higher source? How about these bible verses from Proverbs – once again, they speak to the folly of co-signing.

A man lacking in judgment strikes hands in pledge and puts up security for his neighbor. (Proverbs 17:18 NIV)

Do not be a man who strikes hands in pledge or puts up security for debts; if you lack the means to pay, your very bed will be snatched from under you. (Proverbs 22:26-27 NIV)

But I Want To Help! What Should I Do?

A lot of people find themselves in a situation where they want to help, and they end up co-signing because they don't know what else to do. Remember, however that in the end you may not be helping them as much as you might think. You may be harming the relationship by saying yes. Instead of co-signing why not try one of these ideas:

Giving money directly as a gift: Sometimes you want to help, but don't want to strain the friendship because of a borrower/debtor relationship. Instead of co-signing, why not just give them a gift (if you can afford it), and if they want to, they can pay you back?
Offer to help in ways besides money: Instead of putting your money and possessions on the line, offer to help the person in other ways. Help them to find a better job, offer to help them with their finances, drive them to job interviews.
Encourage them to save up and pay cash: The person you're trying to help may not actually need to buy the thing they're trying to finance. Why not encourage them to save up and pay cash instead of incurring new debt?
If you co-sign anyway, make sure the item is in your name: Make sure that your name is on the title or deed for the purchased item if you end up going against advice and co-signing. That way, if you're taking on the risk, you can also have some recourse if the item needs to be sold or repossessed.

Co-Signing Horror Story – Let This Be A Lesson To You

Here's one co-signing horror story I read just today over at MSN Money. Unfortunately stories like this are all too common:

My biggest mistake was to co-sign a student loan for my ex-boyfriend's younger brother. I have a problem saying no to people that I feel have been dealt a bad hand in life. I felt sorry for him because his family couldn't and wouldn't help him, and I knew he really wanted to go to school. I thought it was a good thing and that he was on the right path with the right mindset. I wanted to believe in him.

It turns out that he made me sign for two loans, not one like he told me. He had me sign the second loan by saying that the school lost the original papers and he had to resubmit the paperwork. Being the naive and trusting fool that I am, I believed him. Turns out he dropped out of school shortly after starting, and didn't give the school any notice so they could refund part of the money. He owed the creditor the full loan amount of almost $9,000. He did not make any payments for almost four years after dropping out — which, after fees, increased the amount owed to over $13,000.

Now, years later, and after numerous phone calls, false promises, pleas and threats, he has finally made a deal with them to make three monthly payments for a reduced amount agreed upon. He could not come up with the second month's payment so I had to borrow from my credit card in order to help out, in the hopes that I can salvage what's left of my nonexistent credit after this is done with. He claims he will pay me back, but I won't hold my breath.

If my advice doesn't scare you out of co-signing on a loan, hopefully the story above will. Don't allow yourself to be guilted into signing onto a loan for someone else's stuff! You get all of the risk, but none of the benefit!

What do you think about co-signing on a loan? Have you ever co-signed, and if so, how did it turn out? Tell us your thoughts about the topic in the comments!

\ If you co-sign and the borrower misses a
payment, the lender can collect from you
immediately.
\ You are being asked to guarantee someone
else's debt when you co-sign a loan.
\ If you are considering co-signing, be sure
you can afford to pay the loan.
\ Your liability for the loan may keep you from
getting other credit you may want.
\ Before you pledge property, such as a car, to
secure the loan, make sure you understand
the consequences. If the borrower defaults,
you could lose your property.

How To Recover After Bankruptcy

By Miranda Marquit Leave a Comment

For the most part, bankruptcy should be the action of last resort when it comes to your money issues. However, there are times when bankruptcy really is the last option you have left.

If you have experienced a long-term employment problem, or if you have had a medical problem that causes you financial distress, bankruptcy might be your last option.

Once you have filed for bankruptcy, however, it doesn't mean that it's the end of your financial life. You can rebuild after bankruptcy, but it takes effort. As you work to overcome bankruptcy, and avoid financial setbacks in the future, here are some things to keep in mind:

Make Sure All the Qualified Debts are Included in the Bankruptcy

The first step to rebuilding after bankruptcy is making sure that all of your debts are included in the settlement. Everything included in the bankruptcy is covered under a single umbrella, and you want to make sure that all of the eligible debts are included in that. Whether you are filing Chapter 7 or Chapter 13, you want to make sure that everything is covered in the settlement so that it makes it easier to rebuild.

You might also need to revisit your credit report regularly to make sure that the included debts aren't listed separately. In some cases, the debts covered in the settlement are listed out separately in the credit report, and that shouldn't be the case. Check occasionally to make sure that these debts remain under the umbrella.

Reform Your Financial Habits to Get to the Root of the Problem

Your next step is to make sure that you have reformed your financial habits. Bankruptcy is a symptom of the problem, not the problem itself. Re-order your finances so that you aren't living beyond your means. You should also work toward building up an emergency fund so that you can better handle financial setbacks. Changing your financial habits so that you no longer engage in the behaviors and oversights that led to your bankruptcy can help you rebuild your situation and possibly avoid another financial catastrophe.

Use Credit Carefully Going Forward

Once you have changed your money habits, you can start using credit carefully in order to help you rebuild your credit score. Start out by getting a secured credit card so that you can start re-establishing your financial reputation. You should be careful only to spend money that you already have. Even after you have had a secured credit card long enough to begin rebuilding your credit score, you need to be careful. Once you get another unsecured credit card, you need to be especially careful in ensuring that you only use your credit card for purchases that you have money saved up for. It's best not to carry a balance, but if you do, try not to spend more than 30 percent of your available credit.

With the right approach, you can rebuild your credit after bankruptcy, and even improve your finances. Take the careful approach so that you don't end up back in the same place again.

3 Signs You Need Help with Your Debt

By Miranda Marquit 3 Comments

One of the most difficult issues to overcome is debt. If you have a lot of debt, it can be difficult to move forward with your finances. The interest payments suck away your disposable income, and once you are stuck in the cycle, it can take serious effort to get out.

In some cases, you might even need help dealing with your debt. You can get help from a legitimate counselor with the National Foundation for Credit Counseling, or get help from a fee-only financial planner.

Here are 3 signs that you might need to seek professional help with your debt:

sign you need help with debt

1. You Only Have Enough for Minimum Payments

When you only have enough money to make minimum payments, that's a huge red flag. It means that you aren't in a position to actually make a solid dent in your debt. Paying only the minimum basically covers your interest, and then maybe a few extra dollars toward principal. It means that you will be in debt for years to come.

If you find that you just can't make more than the minimum payments on your debts each month, you might need professional help to identify strategies you can use to change the situation.

2. You Feel Overwhelmed and Constantly Overlook Bills

If you have so many bills that you can't keep track of them all, that could be a sign that you need professional help with your finances, and with creating a debt pay down plan. Sometimes, you don't miss bills on purpose; you just have so many it's hard to remember what you've already paid, and other bills slip through the cracks.

You might be able to use various tactics and strategies to consolidate some of your bills so that there aren't so many. At the very least, a professional can help you work out a schedule that works with your cash flow reality, and get you on track to stop missing payments or forgetting about some of your bills.

3. You've Tried Before, But Nothing Seems to Work

One of the most frustrating things about debt is that it can be a cycle. If you've tried on your own to beat the cycle of debt, and you keep failing, it might be time to bring in a professional. Sometimes, it's hard to complete overwhelming tasks without support and accountability.

A credit or financial professional can help you work out a path that is likely to “stick” for you, and then help hold you accountable for your progress. Look for someone who can be supportive and helpful, and create a plan that makes sense for your situation.

Bottom Line

You don't have to do everything alone. It's tempting to try to beat debt on your own, and in some cases it's even possible to put together your own debt pay down plan. However, for many of us, a little support and help is needed. Getting professional help can be one way to change your current debt dynamic. Look around to figure out your options, and then choose a professional that truly can help you get back on your feet.

Why Now is the Time to Kick Up the Debt Reduction

By Miranda Marquit Leave a Comment

As you look forward to another year, you're probably thinking of some goals you'd like to accomplish. Even if you don't set formal New Year's resolutions, chances are that you probably have some expectations for the coming year, and some things that you'd like to make happen.

If you still have high-interest consumer debt, now is probably a good time to tackle that. The current situation with the economy is likely to change, and when that happens, you might find yourself paying more in interest than you would like after this year.

Fed Taper And Rising Interest Rates

reduce-your-debt Since before the financial crisis, the Federal Reserve has been taking steps to keep interest rates low. After the financial crash, and after the Fed cuts rates as far as they could go, they took it a step farther and actually started adding to the monetary supply. All of this has meant super-low interest rates.

For savers, it's been something of a nightmare. For those with debt, though, the relatively low rates mean that more of their payments are going toward reducing the principal on their debt.

Now, though, the Fed has begun to taper its asset purchase program. The economy is picking up, and that means that interest rates are likely to rise. Debt is probably going to cost more by the end of 2014, and that means that it's probably time to act now.

Get Rid Of High Interest Consumer Debt

If you still have credit card debt or other high-interest consumer debt, now is the time to kick up your repayment. Call your creditors and see if you can get a bit of an interest rate reduction. If balance transfers are options, make use of them so that you can lock in lower rates. Take a day to work out a plan that can help you improve your finances and help you reduce your debt.

Lock In Lower Rates Now

It's also a good time to lock in lower rates. At some point in the relatively near future, rates on 10-year Treasury notes are going to rise. Mortgage rates are tied to these yields, so that means mortgage rates are likely to rise. They're already higher as compared the rate I got when I refinanced my house in early 2013. They are only likely to go up as the economy improves.

Car loans are also offering good deals right now. If you normally finance your cars (I know, I know, a cardinal sin), locking in now can make sense. Refinance your car or home, and you can save on your monthly payment and save on your overall interest.

Do You Have To Pay Off ALL Debt?

The good news is that you don't have to pay off all of your debt right now. I'm not fussed about paying off my mortgage early, and I am comfortable with my current car loan payment. I'm also in no hurry to pay off my student loans. Why? Because all of these loans are locked in at very low rates. My mortgage rate is low, my car loan and my student loans are below 2%.

My investment returns are higher than what I pay in interest on these low-interest loans, and the interest on the mortgage and student loans is tax-deductible.

Consider your situation, and what makes sense for you. If you have high-interest consumer debt, think about speeding up your pay off schedule.

Live Like No One Else

By Contributor 1 Comment

There is a saying Dave Ramsey likes to use: “Live like no one else, so later you can live like no one else.” The general idea behind this statement is tips on how to live correctly right now so that you can have the most fun later on life. While there are people who prefer the live in the moment type of thing, there are others who want a secure and successful future, and those are the people who would want to know how to effectively live like no one else so that they can ultimately live like no one else later in life.

Start Saving Now

You may have heard the phrase, “Work Now, Play Later.” If you are looking to live like no one else in the future, this is something you are going to need to follow. While it does require time and effort, along with plenty of work, you can start saving now to secure your future and ensure that your future looks promising, exciting, and full of fun. There are so many ways that you can begin saving right now. Opening up a savings account right now would also be a good idea. You can regularly contribute money to your savings from your paycheck and avoid touching your savings. The account will continue to accumulate with money for your future. Even if you can only put $10 or $20 into the account each week, this amount of money will add up. You should also start holding onto your change, allowing it to add up, and then depositing into your account as well.

Eliminate Unnecessary Spending

There is a fine line between wants and needs when it comes down to spending. There are certain things that you obviously need, such as housing, food and water, and hygiene products. However, there are other things that you do not really need and you can do without, which include brand new shows and clothes, expensive makeup, brand name bags, and fast food. You can save a lot of your money by making cuts and holding onto your money instead of spending on things that you do not truly need and may not even really use.

Cut Coupons and Follow Frugal Tips

Cutting coupons can drastically reduce the amount of money that you do end up spending on your necessities, including your groceries and bathroom supplies. You can find coupons in your local newspapers and also on different online websites that are specifically designed for the purpose of providing people with coupons to save money. There are also lots of frugal living tips that you can follow to start saving your own money. For example, some people are making their own dish soap and laundry detergent. While these products are necessities, if you can make your own with a few household ingredients at less than half the price you would pay for a bottle of dish soap or laundry detergent, it would be a good idea to give it a try.

If you want to live like no one else in the future, meaning living without worry and having plenty of finances to take care of things that you need and want, it is important to start saving now. The more you are able to cut back on and save right now, the better you will be able to live in the future.

Looking for a Boost to Help You Pay Down Debt? Join the Debt Movement!

By Miranda Marquit 1 Comment

One of the hardest things about getting out of debt is the fact that sometimes you feel as though you are all alone. After awhile, you begin to feel discouraged, and you suffer from the lack of support.

If you want to succeed with your debt pay down goals, you need support and help. And if you really want to kickstart your current efforts, a little enthusiasm helps. Jeff Rose, the blogger behind Good Financial Cents, is becoming quite well-known for his financial movements. And right now he is in the midst of the Debt Movement, an effort to get consumers to collectively pay down $10 million of debt in 90 days.

Join The Debt Movement

the-debt-movement You can join the Debt Movement at any time in the next 90 days, but the earlier you join, the more progress you will make. Jeff has teamed up with ReadyForZero, which can make it easier to order your debts, make a pay down plan, and track your progress. Joining the Debt Movement can connect you with hundreds of others working toward their goals of debt pay down, as well as provide you with the motivation you need to keep it going.

On top of gaining access to education and community resources, as well as helpful and practical tips, the Debt Movement is also offering scholarships. Some of those who participate will receive debt scholarships designed to help them turbo-charge their efforts. However, you can't get access to the scholarships if you don't sign up and participate. And, even if you don't end up with one of the scholarships, you are still likely to make notable progress during the time of the Debt Movement.

Build Wealth, Not Debt

The reality is that debt is a drain on your wealth. When you are paying interest to someone else, you are sending your own money out of your control. You aren't able to direct your financial resources in a way that results in more wealth for you. Debt can place strain your relationships as well as on your pocketbook. Getting out of debt is the first step toward financial freedom.

Think about your finances. Are you over-leveraged? Do you have too much debt? Do you wish that your money could go to improving your life, rather than just paying interest and other obligations? One of the best things you can do is make a plan that allows you to get rid of your debt as quickly as possible. Think about how much you can spare to set aside for debt reduction, and take the plunge.

Joining the Debt Movement can be a great way to boost your efforts. You'll find a supportive community that can help you stay focused on the goal. Plus, you can receive practical tips and strategies for paying down your debt faster so that you pay less in interest overall. Think about joining the Debt Movement and tracking your progress. You will have more of your own money at your disposal, and you will be well on your way to financial freedom.

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