Escaping co-signing: How to get out of a co-signed loan, credit card
Experts say don't, you did anyway. Can you escape that co-signed loan?
By Dana Dratch
Consumer advocates and financial advisers are unanimous on the subject of co-signing: Don't do it.
When you co-sign, you're not
vouching for the person's good name or character. You're not promising to tell the creditor where to find
the cardholder if those payments stop coming. You're agreeing to foot the bill.
All of it. Along with fees and interest.
"That is the main role," says
Nessa Feddis, vice president and senior counsel for the American Bankers
Association. "They are not a co-applicant or joint borrower."
"Just put the pen down and walk
away," says Catherine Williams, vice president of financial literacy for Money
Management International, a Houston-based nonprofit credit counseling program.
"Please, don't co-sign
anybody," says Bruce McClary, spokesman for
ClearPoint Credit Counseling Solutions, a nonprofit service based in Richmond,
Va. "Because it's a gamble. I may be jaded, but I haven't
seen any really great outcomes."
But if you did co-sign ....
Yet, you went ahead and did it.
Maybe only now do you realize that any black marks associated with
the account can go on your credit report, too. And, since you've stepped up to
accept full responsibility for the debt, you could have (depending on how the
issuer reports the debt), that much less credit available to you when you need
it for a house, car or credit card of your own.
CO-SIGNING HORROR STORY No. 1
Take the case of one
bride-to-be. Her intended picked out a ring from a local shop, presented it to
her and popped the question: Will you co-sign for this?
She said "yes."
When they broke
up, she kept the rock -- and the financial weight of a loan with a 20 percent interest rate. He stopped making payments; she ended up forking over more than $2,400 for a
ring worth less than half that, says Catherine Williams of Money Management International.
"I've seen hundreds of cases
where people's credit is destroyed," says David Jones, who heads up the Association
of Independent Consumer Credit Counseling Agencies, a national network of
nonprofit credit counseling services based in Fairfax, Va.
Co-signers "have all of the responsibilities with none of
Of the 10 largest credit card
issuers, eight -- Chase, Citi, American Express, Capital One, Discover, Wells
Fargo, HSBC and USAA Savings -- say they don't currently allow co-signers.
a long-term commitment," says Todd Mark, vice president of education for the
Consumer Credit Counseling Service of Greater Dallas. Too often, he says, co-signer
responsibilities outlive the relationships that prompted the arrangements in
the first place.
Co-signing exit strategy
So now that you've wised up and want to get out of co-signing, what do you do?
It's not nearly as easy to exit a co-signing deal as it was to enter one.
Exiting the role of co-signer can be tricky. If the cardholder still
doesn't have the credit to qualify for an account without you, the company may
refuse to remove you as a co-signer unless the balance is paid. That leaves you two options:
- Finding a replacement co-signer (if the company allows the practice).
- Closing the account yourself. You may have to specifically request an account be closed; if you ask to be "taken off" the loan, they may refuse. Again, the loan must be paid off, or small enough so that the other party can qualify for a loan in that amount.
|CO-SIGNING HORROR STORY No. 2
When a couple hit a financial and marital rough spot, they got
credit counseling. The biggest financial hurdles were his bills on two cards that she had
co-signed. The combined total: roughly $9,000.
By the time the
couple split up 18 months later, they had paid down nearly half the balances. Then the husband
left town and stopped making payments. The issuers
came after the wife for almost $4,000.
"There was no way she could
manage on her income," Bruce McClary, spokesman for
ClearPoint Credit Counseling Solutions.
The woman declared bankruptcy.
on ending co-signing agreements vary with the issuer, and the best time to ask
how it works is before you sign. That way, if the potential cardholder or the
issuer can't or won't answer all your questions, or if it seems too difficult
to exit the arrangement, you can decline the arrangement.
after you manage to quit as co-signer or close the account, "you are still liable for
any transactions made up to that point," says Feddis.
some situations, if the cardholder converts the card to a solo account (without
a co-signer) or gets a replacement co-signer, the issuer might not hold you
responsible for earlier charges. Ask the issuer how that works in advance.
problem for co-signers: keeping an eye on the account balance and payment
history may be difficult. Before you sign, find out from the issuer whether you
can request and receive statements on the account. Typically, an issuer will
require your permission to raise the credit limit on the card, but ask about
And if you're ever tempted again, , and remember what the experts say.
Co-signing situations, which mix
a volatile combination of close personal relationships and money, are a
prescription for problems, says Williams. "In 28 years of counseling, I've only
seen one of those situations work out," she says.
See related: 4 questions to ask before co-signing, The risks you incur when you co-sign, To co-sign or not to co-sign, Dad co-signed, I messed up his credit. Now what?, College student wants grandma to co-sign on a credit card term
Published: November 19, 2009
Three most recent Bad credit, credit repair stories:
- Payday loan alternatives more important than ever – Having an alternative to high-priced payday lenders -- always a good idea -- could become more so if a federal crackdown shutters some storefronts ...
- 7 debts you may not have to pay – Paying your debts is honorable, and usually a legal requirement, but there exceptions when it can be erased, or it wasn't really yours to start with ...
- Why the wealthy go broke, too – When people with above-average incomes encounter financial hardships, the reasons are surprisingly similar to people with more modest incomes ...