Be Nice and Share!

The Budget Doctor’s Advice on Co-signing

It does not seem as though Americans are nice as they once were. People can be very mean and we even hear about cyber-bullying where people go on line to be mean to others and where parents even engage in cruel behavior towards children. Obviously those parents are not teaching their children that it is nice to share. But it is nice to share. It is good to give money, time, food and other possessions to others.

There are, however, a few things that should not be shared. Viruses come to mind, but it is also good to be selfish with your reputation and your credit. When you give someone money, you get to decide how much to give them. When you give someone a credit card or vehicle loan by co-signing, you have no idea how much it might cost you. If the person you co-sign for decides to stop making payments on a loan, you can find out that you owe the amount due on the loan plus late fees and penalties.

The only reasons for needing a co-signer are having poor credit or having no credit. Someone with poor credit typically has a poor record of paying debts. That person is very likely to also have issues repaying another debt. Someone with no credit has no experience repaying debt and should not be left alone to learn how to do it.

Still, there are a very few times in life when co-signing is a kind thing to do and the risk may seem worth taking. These occasions are rare.

Here is The Budget Doctor’s prescription for dealing with co-signing for credit:

• Never co-sign for anyone with established credit.
  This includes your parents (yes, the ones that gave you life), siblings, co-workers and anyone else over the age of 25.
• Select a young person for co-signing carefully.
  Repayment of debt takes character and commitment. If the young person can’t hold a job or be trusted to act responsibly, you do not want to co-sign, even if it means co-signing a loan for one child and not another.
• Establish a plan to know that payments are made (or missed).
  Insist on access to the account and check it every month, knowing that if a payment is missed, you need to make it.
• Consider insurance for large amounts.
  If you co-sign for $80,000 in private educational loans or a $100,000 hospital stay and the other person dies, you are still responsible for the debt. People with character and commitment can still die. A life insurance policy payable to the co-signer can be a wise move.
• Evaluate the use of the credit.
  Co-signing for a Cadillac Escalade is always a bad idea. Co-signing for a student loan for someone to major in Latin is risky.

If you feel compelled to help someone financially, it may be wiser to just loan them money or even give them a gift.

Many parents think that they have an obligation to co-sign credit applications for their children because they taught them that it is nice to share. Explain to them that by refusing to co-sign you are sharing a great deal of wisdom about money management.